Digest of American income tax cases

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Cornell University Library
KF 6361.A47

Digest of American '"^.•"■.JfllSlH'

3 1924 019 978 976

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DIGEST

OF

AMERICAN INCOME TAX

CASES

PREPARED BY

LYLE T.^LVERSON

OF THE BAR OF THE DISTRICT OF COLUMBIA

NEW YORK

BAKER VOORHIS & COMPANY

1921

"B7ff3^

Copyright, 1921
By LYLE T. ALVERSON

PREFACE

The purpose of this book is to provide in convenient
form an index-digest of all decisions of courts in the
United States, and of the Attorneys General of the
United States, bearing upon questions of income
taxation. Since conceivably every controversy of
law, with the possible exception of those controversies
involving criminal law, or the law of damages, bears
in some degree upon the proper solution of a question
of income tax law, the scope of this work has been
restricted to cases dealing primarily with income tax
problems. The book does not, therefore, contain the
vast number of cases which have dealt with the ascer-
tainment of income or profits or with other related
questions in connection with problems other than
taxation. Nor has there been included in that section
devoted to practice, all of the cases bearing on in-
ternal revenue penalties, although it is true that in-
come tax penalties are governed by principles no
different from those controlling similar questions in
connection with other taxes. However, when neces-
sary to cover some point of practice commonly met
with, cases outside the rigid scope of the work have
been included, and it has been my aim to include at
least one case, whether or not it is strictly speaking an
income tax case, bearing upon every point frequently
encountered. While a few cases have been included
which are only of a historic value because of a change

iii

IV PREFACE

in the law, or because of a later conclusive ruling by
the Supreme Court, the original plan, that every
decision reported dealing directly with income taxa-
tion be digested, has been adhered to, for I have felt
that not only is it desirable to trace the course of the
controversies involved, but that many times, theories
advanced by courts of first instance, though disre-
garded by the higher courts, may prove useful in the
same or a different connection.

The work was undertaken in the hope and belief,
based on the increasingly practical attitude of the
courts, that more real law, and less theory, will in the
future serve as a guide in the solution of the many
vexing questions which can and do arise in income
taxation. If it assists ever so slightly in the accom-
plishment of that hope, I shall feel that the time
necessary for the compilation was well spent.

Lyle T. Alverson.
New York City,

February 14, 1921.

FOREWORD

I believe the members of the legal profession will
find this Digest a real help in the many problems and
cases which are constantly confronting them in the
practice of the law to-day. The idea was conceived
while I was Solicitor of Internal Revenue. Mr. Al-
verson discussed with me at that time the great need
felt by the lawyers in the Solicitor's office for a com-
prehensive Digest of opinions dealing with income
and profits tax questions. There, experience had
shown that no satisfactory Digest was extant; that
the various works treating of income and profits
taxes largely reflected the views of their respective
authors and, in many phases, those of the Depart-
ment; that in no one work was to be found in conven-
ient and concise form the controlling law, supple-
mentary to the statutes, on this important subject —
that which has been handed down by the courts. I
suggested to Mr. Alverson that he perfect the reading
which he had commenced and make it available to
the public.

Naturally a Digest does not treat of disputable
questions, but the excellent encyclopedic index and
the completeness of the cases digested will afford the
careful lawyer an entrance into a field of law not too
well explored and serve as a guide to him in one of the
most difficult and complex branches of the law. I
commend it to the profession as a work carefully,

VI FOREWORD

competently and considerately done, one which
reflects the present opinion of the courts on the vexing
questions arising under the revenue laws.

Wayne Johnson.
New York City,

February 14, 1921.

CONTENTS

CYCLOPEDIC DICIEST OF

DIGEST CASES

Page Page

Income 1 .. .. 1

Gain or loss, time of realization 6 70

Sources of income 7 76

Exemption of persons and incomes 8 83

Deductions: in general 10 95

Deduction, restriction on 12 106

Deduction, bank share taxes 13 112

Deduction, of losses 13 116

Depreciation 14 117

Depletion 14 120

Statutory construction 15 126

Constitutionality 17 141

Constitutionality, interstate commerce and

exports 21 158

Constitutionality, judicial salaries 21 160

Constitutionality, sovereign state 22 164

Insurance companies 23 168

Taxable entities 24 182

Excess profits tax. 24 185

Tax-free covenants 25 188

Practice 27 196

Enjoinder of taxes 30 210

vii

V1U CONTENTS

CTCLOPBDIC DIGEST OF
DIGEST CASES

Page Page

Conditions for suits 27 213

Compromises 31 216

Miscellaneous cases 219

II

Excise tax Act of 1909 229

Income tax Act of 1913 238

Income tax Act of 1916 263

Income tax Act of 1917 299

Income tax Act of 1918 312

Profits tax Act of 1918 363

General administrative provisions, Act of 1918 377

Alphabetical table of cases 391

Numerical table of cases 423

Subject index 431

CYCLOPEDIC INDEX

(References are to case numbers)

Income

Income is the gain derived from cap- Definition
ital, from labor or from both combined
(49) provided it be understood to include
profit gained through a sale or conver-
sion of capital assets (11). It may in-
clude gifts (17, 109) but does not in the Gifts
absence of specific provision (62). It is
used in the ordinary sense in taxing stat-
utes (24, 222), "as the word is used in
every day life" (45), and in common
understanding (52). All that comes in
is not income (44), since it is a question
of substance and not of form (11), but
it is not, it seems, a question for a jury
except as to amount (1, 37, 54, 55). It
imports a flow, and time is essential in Meaning
its measurement (11) and is said to be
the amount of wealth which comes to a
person during a given period of time (52).
It has been likened to the fruit of a tree
(70) and severance from capital is re-
quired (11). To be taxable it must be
received (11, 17, 55, 289), but receipt
may be constructive (2, 3, 18, 28, 37, 38,
71). Thus, payments to stockholders for

l

Must be
received

CYCLOPEDIC INDEX

Exchange of
stock and
property

Conversion
of capital

assets

Measure of
gain

the use of corporate property are income
to the corporation (idem) and a dividend
due but uncalled for is income (86).
Being a question of substance, no income
results from paper transfers incident to
corporate reorganization (1, 55), or mere
book entries (16, 20, 44, 59, 74, 75, 180,
187), but an exchange of stock for other
stock as a result of corporate reorgani-
zation may result in taxable income
(34, 48), although an exchange of property
for stock works no gain to the corporation
(40) ; nor does an exchange of property
for other property (66), under a statute
taxing "income." The profits resulting
from the realization of gain accruing
over a number of years through the sale
of capital assets are not "annual" in-
come (14, 198) and have been held to be
not income at all (4, 85). See also (279).
But such gains have also been held to be
income (5, 41, 52, 57, 80, 81). However,
only such gains as accrued since the inci-
dence of the respective tax laws are taxa-
ble (44, 45, 45-A, 78, 79, 80, 81, 87). The
amount thereof is the difference between
the value of the assets at the incidence
of the act, and the sale price (57), and
the former may be shown by any com-
petent evidence, including resolutions
of a board of directors (59). On the same
principle, the liquidation of claims or

CYCLOPEDIC INDEX

property existing at the incidence of the
act is nontaxable (27, 44, 60, 61, 65, 78- change in
81, inc., 87), but see (17). However, the f °>™°niy
claim liquidated must have been a real
and substantial one (9) and although
mere conversion of capital results in no
income (85) and thus the proceeds of
accident insurance are not taxable (32)
not every wasting of capital must be Waste of
recognized in computing income (49, 188) ; capital
thus a wasting of mineral deposits need
not be accounted (7, 8, 181, 183, 184,
185, 188) although it seems the rule
is different as to timber wastage (79).
The exhaustion of a lease is to be ac-
counted it seems (68, 179), although the
Supreme Court disregarded the theory
(186,188). Dividends on corporate stock Dividends
in ordinary course are income to the re-
cipient, in the absence of specific provi-
sions whether or not paid from pre-
existent surplus (24, 35, 36, 42, 46, 47, 69,
197- A), and no allowance will be made
on account of the reduced value of the
stock after the dividend (24, 69). But
dividends declared before the effective
date of the act and payable afterward are
not taxable (60); and liquidating divi-
dends no greater than the value of the
stock at the incidence of the act are cap-
ital distributions (85). The true test is
whether the dividend is made from cap-

CYCLOPEDIC INDEX

Dividends in
kind

Bookkeeping
transfers

Stock
dividends

Income

means

money

ital or earnings (42). See also (121).
Dividends in kind are taxable as income
(35). Dividends paid with exempt se-
curities are taxable (111). But mere
bookkeeping entries, showing transfers
between closely affiliated corporations,
are not income (16, 44), although the
identity of the corporations must be
complete to escape the tax (42, 63).
Stock dividends are held to be not in-
come (11, 51, 63, 338), except in Massa-
chusetts (52, 72), where the rule has
since been changed by statute. The
proceeds from the sale of rights to sub-
scribe to stock are income (52). The un-
divided profits of a corporation were for-
merly held under a specific statutory
provision to be income of the stockholders
(6, 21) but this has been declared uncon-
stitutional (11), except where the corpora-
tion is used as a shield from taxation
(364). The income must have actually
been derived (11) and a contingent right
to commissions is not therefore taxable
(9, 10, 73). In the absence of specific pro-
vision, income means money (45), and
not the expectation or right to receive it
in futuro (64); thus, a promissory note
not presently due is not income (56, 64),
unless it has intrinsic value and is capable
of ready conversion into money (58, 66).
But the note of a third person stands

CYCLOPEDIC INDEX

differently than the note of an immediate
party (56). Income is not derived by
rendering services and charging for them
(10), although bills or accounts receivable
in the regular course of business may be
income (78). Without specific provision,
accrued but unpaid interest is not income
(131, 281, 288, 289, 291, 294), nor are
due but unpaid insurance premiums
(idem), and the amortization of discount
at which bonds were purchased is not
income (20, 23). See also (76, 146, 278,
281). Travel and expense allowances are
income (12, 19, 29), at least as to the
excess not spent (12). Alimony is not in-
come (13). Income of husband or wife
domiciled in a jurisdiction having the
community property system is to be di-
vided equally (33). The value of im-
provements on leased property is not in-
come to a landlord at the termination of
the lease (25, 77), but the rental value of
a residence may be taxed as income to
the owner who resides therein (245).
Crops fed to livestock are not income (61).
See also (239). Payment of income to
an agent is taxable to the principal in the
year of payment (289), but it is not tax-
able when turned over to the principal
(27). Inventories valued at cost or fair
market value may be used to reflect in-
come (31), but it has been held that

Accrued
items

Expense
allowances

Husband
and wife

Cancellation
of lease

Payment
to agent

CYCLOPEDIC INDEX

Inventories

moneys invested in inventories are to be
excluded from profits (388). However,
it is immaterial that income has been
invested in capital assets (53).

Bonds sold
at discount

Cancellation
of lease

Sale of
capital

assets

Payment
for services

Dividends

Unfortunate
purchase

Embezzlement

Gain or Loss, Time of Realization

The sale of bonds at a discount by an
obligor results in no loss in the year of
sale (75), or before payment (76, 146).
Cancellation of a lease, giving the landlord
possession of improvements erected by the
tenant, works no income to the landlord
in the year of cancellation (25, 77), but
semble does in the year of erection (idem).
Income from the sale of capital assets
at a profit, if taxable, accrues in the year
of sale (41, 79, 81). Payment in one
year for services extending over a period
of years is income for the year in which
payment is made (82), and a dividend is
income when available to the stockholder
(86). A dividend declared in one year
and payable the next is income of the
latter year (209). See also (197-A.)
Where a property was purchased for
more than its true value, but such fact
is not discovered until later, the loss is
not a loss of the year of discovery (173)
but of the year of purchase; likewise, an
embezzlement works a loss in the year
of its occurrence, and not in the year of
discovery (87- A).

CYCLOPEDIC INDEX

Sources of Income

To impose a tax, there must be juris-
diction of the person or the income (95,
242). See Constitutionality. The fed-
eral government has jurisdiction of its Jurisdiction
citizens residing in the Philippines and
may tax them like citizens in the United
States (200). It may tax nonresidents on
income from bonds secured by property
in the United States, or from stock of do-
mestic corporations, actually held within
the United States (90), although the
Attorney General thought otherwise (94),
because such bonds and stock are prop-
erty in the United States, but not if the
bonds are outside the United States (249,
253). And see (204) and (97). Income
from stocks and bonds held outside a
state in trust by a nonresident is not from
sources within the state, even where the
trust is administered under the authority
of a domestic court (88). But income ac-
cruing in trust within the state for a non-
resident is taxable (222). Income from From trusts
a trust is not from sources within the
state because the trustees perform their
duties therein, when the income comes
in fact from property outside (98). In-
come from the purchase of milk outside
the state, transportation to within, pas-
teurization, bottling, sale and delivery
there, is from sources within the state

Income from
bonds

CYCLOPEDIC INDEX

Income from

business

operations

Steamship
lines

Allocation
of income

(91). To the same effect see (67, 95).
But mere purchases within and sales
without the jurisdiction do not produce
income from within (95); contra (100).
Purchase without and sales within do
(95). Purchase without, shipment within
and sales without the state by persons
residing therein are not income from
sources within (67). Manufacture within
and sales without the state produce in-
come from within (67); contra (95). A
steamship line transporting goods on the
high seas to and from the United States
receives income from within (93, 95).
As to foreign partnership with one mem-
ber within see (95). A state may allocate
income from within and without accord-
ing to the ratio of tangible property within
and without (99). But an allocation
which disregards intangibles is incorrect
(96).

Court

Exemptions of Persons and Incomes

See Constitutionality, Incomes from
Interstate Commerce, Judicial Services
and Sovereign State Incomes. Without
specific provision, incomes accruing to
receivers acting under court authority
are exempt (107, 119, 124); and the same
is true as to incomes accruing in the hands
of trustees for unascertained persons
(104, 126). Semble, a trustee for an ex-

CYCLOPEDIC INDEX

9

empt institution is exempt (108). A
provision requiring the return of incomes
of trustees "operating the property or
business" of corporations does not reach
income produced by a trustee's liquida-
tion of corporate assets (106). Whether
or not a corporation is organized for
profit is immaterial (18, 102, 155), and a
nonprofitable purchasing association is
not ipso facto exempt (113), nor is a pub-
lic service corporation (53). The words
"fraternal beneficiary society" are to be
applied literally (102). A building and
loan society is "mutual" even though it
issues paid up stock with guaranteed
interest, since "mutual" means substan-
tially equal (105), but it is not mutual if
in addition it loans to nonmembers and
its directors are authorized to retire its
stock in their discretion (114). Credit
unions, being in substance cooperative
banks (specifically exempt) are also ex-
empt (112). A corporation does not
escape tax by dissolution (123, 383, 392,
400), nor an individual by death (192,
203). Gifts are not income (62), except
where specifically so designated (17). In
such case a railroad subsidy is income
(109). While it has been held that in-
come from exempt property is exempt
(109) since a tax on income is a tax on
the property whence it springs (109, 235,

Trustees

Nonprofi-
table organi-
zations

Fraternal
beneficiary
society
Building and
loan society

Credit
unions

Dissolution
or death

Gifts

Income from

exempt

property

10

CYCLOPEDIC INDEX

Dividends
from holding
companies

237, 238) contra, (324), the income from
United States bonds is to be included
when computing an excise-income tax
(110). Under a statute exempting in-
come from property already taxed, the
income of a merchant is not exempt
though his stock is taxed (125). Incomes
paid with property itself nontaxable are,
however, taxable (111). Where a statute
exempts dividends from "assessed" cor-
porations, those from holding corpora-
tions which pay no tax because all income
is from exempted dividends, are taxable
(120). And where dividends to a holding
company are capital distributions, the
dividends made by the holding company
are likewise capital, and not earnings
(121).

Compensa-
tion

Office
equipment

Deductions, In General

See Depreciation and Depletion. Sal-
aries paid may be deducted but not a
distribution of profits; thus payment
under a contract that all profits over 10%
shall be paid as salaries is not deductible
(139) but the question is whether the
payments are of salaries or of profits, and
not of reasonableness (147, 150). Attor-
neys' fees paid in litigation for acquisition
of stock are not deductible (140), since
capital investments are not deductible
(53), but expenditures for new office equip-

CYCLOPEDIC INDEX

ment, even to considerable amount, are
deductible (291), and where old property
is replaced with new the replacement Replaced
value of the old may be deducted (129, P r °P ert y
130, 132, 135). The cost of new machin-
ery may be deducted where the old is
so worn as to be inefficient, even though
the old is retained for emergencies (135).
But no deduction may be made when a
new plant is erected in a different site if
the old plant remains without change,
even though the total value is not en-
hanced (133, 135). An expenditure for
clearing property in order to raise crops Clearing
is deductible (135). A surveyor cannot land
deduct expenditures for books, instru-
ments, etc., necessary to his profession
(137). Losses of a man engaged in oil Losses in
development through embezzlement by e
his broker of moneys used in stock market
speculation are losses in trade and are
deductible (127), as are other losses
through embezzlement (87- A); likewise
as to losses of corporate stock acquired
through complicated transactions (128),
but losses by one engaged in the bagging
business through dealing in cotton futures
are not "in trade" and are not deductible
(141). The scrapping of a vessel because
of requirements of navigation authorities
that extensive repairs be made, is not a
loss in trade and is not deductible (138).

11

12

CYCLOPEDIC INDEX

Income and
estate taxes

Bad debts

Amortization

Contribu-
tions

Contingent
reserve

An advance by a parent corporation to a
subsidiary to meet losses is deductible
(131). The federal income tax of a de-
cedent is not deductible by his estate in
computing estate tax (134), nor is the
federal estate tax deductible from the
estate's net income (143). The New
York transfer tax is likewise not deduct-
ible from the incomes of the legatees
(145). Bad debts are deductible, and a
merchant's attitude toward them is good
evidence as to their worthlessness (149).
More or less latitude should be allowed
as to when they become worthless (171),
but a sole stockholder cannot deduct an
amount owing him by the corporation
by a mere charge to profit and loss (172).
Bond obligors may not deduct as amorti-
zation an aliquot portion of the discount
at which the bonds were sold (146, 76).
Nor can they deduct the entire amount of
the discount in one year (75). Corpora-
tions may not deduct the value of con-
tributions to the Red Cross and kindred
organizations (142), nor taxes paid on
their behalf by another (148). A con-
tingent loss is not deductible (334-A).

Deduction, Restriction on

A specific limitation as to deduction of
interest precludes its deduction as a busi-
ness expense or otherwise (154, 160, 161),

CYCLOPEDIC INDEX 13

and it is immaterial that the taxpayer be
engaged in a business in which large pay-
ments of interest are a normal incident
(152, 159). An express allowance of de-
ductions for taxes wherein certain kinds
of taxes are named, precludes allowance
of taxes of kinds other than those named
(161, 214). Where interest allowable as
a deduction is limited to that paid on an
indebtedness not exceeding paid-up cap-
ital stock, the latter term means the par
value of the stock (156) plus the amount
paid on part paid stock, excluding pre-
miums paid (162). Cash advances to a
corporation without stock actually having
been issued cannot be included (155).

Deduction by Banks of Taxes on Shares

It is practically unanimously held that
taxes levied by states against shares of
bank stocks and required to be withheld
from dividends may not be deducted by
the banks (164, 165, 167, 168); but see
(169).

Deduction of Losses

Loans or accounts receivable which
have become worthless may be deducted
as losses (171), but the entry made by a
sole-stockholder-creditor in his books is
not enough to establish a loss (172).
Semble, the purchase of property for more

14

CYCLOPEDIC INDEX

than its true worth works a loss to the
purchaser (173). The peculations of a
defalcating employee are deductible
(87-A).

Depreciation
of bonds
and stocks
Depletion

Change in
neighborhood

In addition
to main-
tenance

Depreciation

A deduction on account of depreciation
cannot be made as a "loss" or an "ex-
pense" (175), but it has been allowed
without specific provision (132, 176). The
term includes a loss in value of bonds and
stocks (176, 177) but not depletion of
natural deposits (49, 184, 185, 188);
contra, (180, 187). But an allowance for
exhaustion, wear and tear excludes an
allowance for loss in value due to change
in the neighborhood of an apartment
building (174). An allowance for depre-
ciation may be deducted in addition to
ordinary repair and maintenance expenses
(178), but not if depreciation is offset by
appreciation or repairs so that the value
of the whole is no less (176-A).

Depletion

Depletion is not a matter of right,
since every wasting of capital need not
be accounted (49, 181, 183, 184, 188), and
"depletion" is not included in "deprecia-
tion" (49, 184, 185, 188); contra, (180,
187). A lessee a fortiori has no right to
depletion (182, 186, 189) except where the

CYCLOPEDIC INDEX

15

legislature specifically provides (182- A).
The discovery value allowed under the
federal act of 1918 may be allowed only
to the person in possession (182- A), but
in the case of a lease is to be equitably
apportioned between lessor and lessee
(idem).

dividends
or interest

"Employ-
ment"

Statutory Construction

A tax levied on interest or dividends Tax on
but requiring the payor to withhold the
amount of the tax is a tax on the debtor
or shareholder (199, 203-A, 204, 205,
209, 212, 276); contra, (191, 211, 216).
And see (190). A tax on compensation
for "employment" does not reach the
income of a minister of the gospel (210).
An act of Congress providing that a tax-
ing act shall be "construed" to be ex-
tended operates as an extension (197-A,
213). Executive construction of a statute Executive
is entitled to great weight (89), especially construction
where it has long prevailed (218), and
to respectful consideration (219, 307),
but it has been said a Treasury Decision
is not entitled to great weight (129).
The Secretary or the Commissioner can-
not, however, broaden the law by con-
struction, and regulations which seek
to do so are void (56, 129, 306, 389, 398).
The reenactment of a statute by Con-
gress does not adopt the Commissioner's

16

CYCLOPEDIC INDEX

Limitation
on assess-
ment

Income is
property

Change in
act after
dispute

construction thereof (334-A). The three-
year limitation imposed by the Act
of 1909 and similar acts does not prevent
suit by the government but only assess-
ment (217, 220, 221, 334-A), and the term
"false or fraudulent" as there used
means "incorrect" or "fraudulent" (73,
163, 164, 167). The repeal of a statute
without a saving clause prevents collec-
tion of accrued taxes (221). But see (12).
A statute assessing a tax on income
received in the year "next preceding
assessment" means the state's fiscal year
shall be used (195), but a statute cannot
be construed to be retroactive by impli-
cation (194). Income is property and
the provisions of law relating to the taxa-
tion thereof are applicable to the taxation
of income (201, 235, 247); contra, (195,
233, 240, 268). A pawnbroker's interest
is interest received from money at interest
rather than from dealing in personal
property (196). The net income returned
to the federal government includes the
excess profits tax (207). But see (309).
"Assessor" will be read as "collector"
when necessary to effect the legislature's
intention (214). When the legislature
changes an act after dispute, making it
conform with one or the other of two
contentions, it is evidence that the con-
tention adopted always was the law

CYCLOPEDIC INDEX

17

(104, 119, 302); that it never was the law
(24, 62, 161). See also (210). In case
of doubtful meaning, taxing statutes
are to be construed most strongly against
the government (13, 115, 240, 301, 302,
303), since a revenue law is classified as
penal (210), but it has been said the
principle of strict construction against
the government no longer obtains in
federal courts (89). The sense in which
tax laws are strictly to be construed is
that no tax can be imposed by courts or
executives (295), and courts cannot un-
dertake to adjust inequalities which arise
between two taxpayers where the act is
otherwise valid (307).

Doubtful
meaning

Double
taxation

Constitutionality

A graduated income tax does not take
property without due process of law or Due process
deny equal protection of the law (223,
225, 230, 236, 241, 247, 251). Such a
tax is not void as being double taxation
where the property from which the income
springs is also subject to tax (125, 223,
232, 245), although sembh there is a pre-
sumption against an intention of the
legislature to tax income from property
itself taxed (390), and an intention to
tax the same income twice must be ex-
pressed in clear and unmistakable terms
(282). But it is not invalid double taxa-

18

CYCLOPEDIC INDEX

Power to
classify

Classification
of nonresi-
dents

Joint- stock
associations

tion to assert an excise and an income tax
with reference to the same activity (227,
228, 231, 255). While a legislature's
powers of classification are broad and
are subject to no censure unless the
classification is manifestly unjust, arbi-
trary or whimsical (224, 239) and a classifi-
cation of persons according to their in-
comes is reasonable (233), an income tax
law which taxes domestic corporations
doing business within and without the
state but exempts those doing business
only without the state accomplishes un-
reasonable classification (230), although
a discrimination may properly be made
between corporations deriving all of their
income from sources within the state and
those deriving only a part therefrom
(228), and the fact that nonresidents are
allowed deductions only of losses within
the state while residents are allowed to
deduct all losses does not violate the
privileges and immunities clause (241),
As to taxation of nonresidents generally,
see (241, 242, and 251). Joint-stock
companies and associations are properly
classified with corporations (229). But
a law which exempts incomes below
$2,000 and allows no exemption what-
ever to those in excess of that sum is
unconstitutional (226), although the fact
that an individual's surtax begins with

CYCLOPEDIC INDEX

19

the fourth thousand, while that of a cor-
poration begins with the first is reason-
able (224), as is an exemption of $1,000
to individuals and nothing to corporations
(236, 239), and such exemption is not in-
valid as arbitrary where given to all
families regardless of size (239), nor is
it illegal classification to tax a family as
a unit (245). An exemption of state Exemptions
salaries, real estate rentals and farmers' ofclaases
incomes is also valid (247), and there is
no objection to taxing differently those
persons who have paid real or personal
property taxes (233). Likewise, schools,
colleges and fraternal benefits ocieties may
legally be exempted from income taxa-
tion (236). Retroactive operation of Retroactivity
an income tax does not render it void
(192, 215, 252, 400) and Congress may
levy a prospective tax measured by past
income (213), but a statute not declared
to be retroactive in operation is not to be
made so by implication (194). A con-
stitutional provision against retroactive
legislation renders inoperative a law
passed in May so far as concerns income
already earned (243) although a strong
dissenting opinion was based on the
ground that a year's income is a unit
which comes into existence only at the
end of the year (idem). Jurisdiction,
either of the person or the income, is

20

CYCLOPEDIC INDEX

Nonresidents

Sixteenth
Amendment

Income is
property

Testis

practical

operation

requisite to the imposition of an income
tax (95, 242). See Sources of Income.
Citizens are taxable when residing in
the Philippines as other citizens (200).
There is no jurisdiction to tax interest
on bonds of domestic obligors held by
nonresidents at the place of their resi-
dences (97, 249, 253), but see (204) af-
firmed (211) on ground tax was an excise
tax on the obligor; contra, if the bonds
are held in the United States (90) al-
though the Attorney General disagreed
(94). As to jurisdiction over income from
trusts and business operations see Sources
of Income. The Sixteenth Amendment
did not enlarge the power of taxation but
only removed the requirement of appor-
tionment (225, 257, 261) said in the Pol-
lock cases to be present (237, 238), but
see (244). Income taxes are not beyond
the constitutional provisions governing
the taxation of property (201, 235, 247);
contra, (195, 233, 240), since income is
property (idem) ; therefore, an authoriza-
tion to levy property taxes is sufficient to
sustain an income tax (247) ; contra, (240).
The constitutionality of an income tax law
depends upon its practical operation and
effect and not on mere theoretic distinc-
tions (241). There is no violation of due
process in the requirement that appeal

CYCLOPEDIC INDEX 21

to the Commissioner must be taken be-
fore suit (365).

Constitutionality: Interstate Commerce and Exports

It is generally agreed that a tax on
income from operations in interstate
commerce is not unconstitutional (67, 99,
254, 255, 258); and the same result is
reached in the case of income from the
exporting business (93, 256, 257).

Constitutionality: Judicial Salaries

Judicial salaries are doubly protected
from income taxation: the sovereign
which is served may impose no income
tax because such a tax would conduce
to the dependence of the judiciary on the
legislature (261, 263, 264, 265, 266), see
also (267) and the federal (or state as the
case may be) sovereign may not impose
such a tax because the one sovereign
may not embarrass the other by taxing
its instrumentalities (259, 262, 268). But
in Wisconsin it was held that a constitu-
tional amendment authorizing a tax on
"incomes" was broad enough to allow
of a tax on state judicial salaries (248).
An income tax may apply to judges taking
office after the effective date of the taxing
statute, although there is a presumption
against such construction (266). The Act
of 1918, however, so operates (266-A).

22 CYCLOPEDIC INDEX

Constitutionality: Sovereign State

The federal government may not levy
an income tax on the salaries of state
officers (259, 270, 275, 277); nor may the
state levy such tax on federal officers
(262, 268, 269). But a state may tax
the salary of a federal clerk (271). The
exemption ordinarily allowed to taxpayers
may not in the case of state (or federal)
officers be applied first to the salary re-
ceived for serving as such, thus in effect
depriving them of their exemption (277).
The federal government may not tax the
income of a state or agency thereof de-
Govern- rived from governmental activities (272)
mental anc j th ere j s a presumption against ex-
tending such taxation even to nongovern-
mental activities (idem). Assistance to
a railroad is a governmental activity and
interest from money loaned or invested
for such purpose is not taxable (272, 273,
276), but the receipt of money for dis-
tribution to the poor, to aid science and
literature, etc., is possibly taxable as in-
come (276). The true distinction lies be-
tween those activities which can only be
carried on by the state, and others (229).
A special assessment district created for
the improvement of streets, drainage,
etc., is a "political subdivision" of a
state and it seems constitutionally exempt
(274).

CYCLOPEDIC INDEX

23

Insurance
dividends

Insurance
reserves

Mutual and Other Insurance Companies

Mutual insurance companies are not
taxable with reference to the excess of
premiums over insurance cost returned
to policy holders (278, 279, 280, 281, 282,
291, 294), whether or not the insured
elects to apply such excess to new insur-
ance (287), and it is immaterial whether
the credit made to the insured is by way
of contract (297) or required by statute
(293). But the premium receipts of a
mutual trade society are income (285).
The deduction allowed of net additions
to reserve funds required by law is re-
stricted to additions to insurance reserves,
and thus additions to reserves for business
contingencies are not deductible (289,
292). But an addition to a reserve to
meet policies matured but unpaid at the
option of the insured is deductible (291),
as is an addition to a reserve maintained
in anticipation of payment of installment
payment life policy, the insured being
deceased (294), but not if such addition
is offset by the reduction in another re-
serve at the time of the death (281). The
size of the company's surplus is imma-
terial (284), and it does not matter
whether the reserve includes also policies
on which premiums have not been paid
(297). A reserve is "required by law" Reserve f

x ' -i •/ required

when required by the regulations of a bylaw

24

CYCLOPEDIC INDEX

Premiums
paid back

Accrued
premiums

state insurance commissioner acting un-
der competent statutory authority (284,
289, 297). A decrease in reserves, addi-
tions to which are deductible, is income
to the extent it increases the free assets
of the company (289). The exclusion
from gross income of premiums paid back
within the year merely means only pre-
miums actually received shall be ac-
counted (296). Accrued and due pre-
miums are not income until paid (281,
287, 291, 294).

Taxable Entities

A Massachusetts trust is not a joint-
stock association (299, 300), and a part-
nership is not to be so classified because
one of the partners is a corporation, and
participates in the business through a
board of directors (301). In the absence
of provision a partnership is not a tax-
able entity (302, 303); nor are receivers
acting under court orders (107, 119, 124),
or trustees of property receiving income
for unascertained persons (104, 126).

Excess Profits Tax

The excess profits tax of 1917 is essen-
tially an excise tax and should compre-
hend only the income from the main or
principal business (308). Whether a man
has more than one trade or business is a

CYCLOPEDIC INDEX 25

question for a jury (304). A partnership
has "no invested capital or no more than
a nominal capital" where no capital is
used in the ordinary business but is used
in casual transactions (308) and it is im-
material that profits are undrawn (idem),
but it has been held individual property
pledged at banks to secure partnership
credits caused the firm to have invested
capital (305). A corporation whose only
capital consists of a patent has no in-
vested capital (306). A stock dividend
has no effect on invested capital (307).
As to the manner of computing graduated
profits taxes, see (197).

Covenants to Pay Income Taxes

The following covenants have been held
to require payment by the lessee or bond
obligor of the income tax of the lessor or
bond obligee:
To pay:

"all taxes upon or against the rent"
(317).

"any taxes or excises * * * laid or
assessed upon or against the rent,
* * * whether as rental or as in-
come" (318).

"all taxes upon the yearly payments
herein agreed to be made, for which
the lessor would otherwise be liable"
(320).

"rent without any deduction for
taxes" (321).

26 CYCLOPEDIC INDEX

"all taxes lawfully imposed upon the

lessor or for which the lessor would be

liable on account of its earnings or

profits" (322).

"all taxes upon the rent payable

* * * for which the lessor would

otherwise be liable" (323).

"taxes in respect of the rent" (325).

"taxes * * * on the yearly rent"

(327).

The following covenants have been
held not to require payment by the lessee
or bond obligor of the income tax of the
lessor or bond obligee:
To pay:

"any expense incidental to the issue
of the bonds" (310).
"all taxes assessed or imposed on the
demised premises or any part thereof
or on the business there carried on
or on the receipts gross or net de-
rived therefrom" (311, 319).
"principal and interest without any
deduction, defalcation or abatement
to be made of anything for or in re-
spect of any taxes, charges or assess-
ments whatsoever" (312).
"all taxes payable for or in respect of
the leased premises" (313).
" * * * all taxes or assessments, spe-
cial or otherwise, and public charges
of every kind and nature that shall or
may be taxed or assessed against the
(lessor) company or its property"
(314).
"interest and principal without any

CYCLOPEDIC INDEX

27

deduction * * * for or in respect of
any taxes, charges or assessments
whatever" (315, 316).
"principal and interest without de-
duction from either such principal or
interest, for any tax or taxes, which
(it) may be required to pay or retain
therefrom, under any present or
future law, (it) agreeing to pay such
tax or taxes" (326).
"all taxes for or in respect of the
premises or any part thereof" (328).

Practice

Suit will not lie to recover taxes until
payment has been made and claim for
refund has within two years been filed Necessity
with and rejected by the Commissioner
(289, 348, 372, 375) and an indorsement
of protest on the check or on the return
is not sufficient (348), although an irregu-
lar claim stops the statute of limitations
(377). This requirement is not obviated
by the filing and rejection of a claim for
abatement before payment (372), but
see (127, 338, 364, 397). However, a fil-
ing with the local collector is sufficient
(359, 378). The time within which claim Limitation
may be filed dates from the time of pay-
ment of the tax (374, 375). Suit must
be brought within two years from the
time the claim is rejected, or from the
lapse of six months from filing, which-
ever occurs first (374, 289). But see

of claim
for refund

on time
of filing

28

CYCLOPEDIC I1JDEX

Nature of
suits against
collector

Interest

from

collectors

Allowance of
claim by
Commis-
sioner

Death of
collector

(373). The statutory bar is not removed
where the government increased the
original assessments although suit to re-
cover moneys paid on the second assess-
ment is in time (289, 332). Suit may be
brought either against the collector or
the United States (334-B). Suits against
the collector are in assumpsit on an im-
plied contract (340, 343), and although
it is sometimes said the United States
is the real defendant (340, 374), but see
(333), interest may be recovered from a
collector without specific statutory au-
thority (177, 373, 374). If appeal is
taken, interest may be had until appellate
decision (337), but a suit may not be
maintained for interest alone (352).
There is no assumpsit, however, where the
collector is under a statutory duty to
pay the tax immediately into the Treas-
ury (6). A claim certified as allowable
by the Commissioner has the effect of
an account stated and there is no review
(335, 359, 362, 363), but he may recon-
sider the allowance at any time before
payment (346). His decision on any
fact within his jurisdiction is final unless
the case be one in which suit against the
collector is allowable (335), and whether
the claim was filed before the statute of
limitations had run is such a fact (idem).
While in case of a collector-defendant's

CYCLOPEDIC INDEX 29

death, suit may be continued against his
representatives (343), a suit may not be
instituted against his successors in office
(343, 344), but see (287), unless suit has
been filed. A claim for refund is not a
suit (344). Nominally, no suit may be
maintained to recover taxes unless they
were paid under protest. But when both payment
the collector and taxpayer understand xmdeT P r °-
that the tax is paid under compulsion the
rule does not apply (349) , and a verbal pro-
test is sufficient if noted on the collector's
receipt (idem). Since the Act of 1918,
suit is a matter of right (197), and in any
event compliance with the regulations
coupled with a claim for abatement is
sufficient to avoid the rule (idem). Costs Costs
may be recovered where the rules so pro-
vide (334), and even though it is argued
the United States is real defendant, when
a suit originates in a state court allowing
costs they are allowable in a federal
court (idem). But federal regulatory
acts are binding on state courts (6). Cor-
rections in favor of the government may
be made in a suit brought by a taxpayer
against a collector (340). A court will
deal only with the theory on which tax
was collected (338), although it is said
the real question is whether in good
conscience the plaintiff should prevail
(340) and see (61). The burden is of

30

CYCLOPEDIC INDEX

Enjoinder
of taxes

Stockhold-
er's bill

Meaning of
"restrain"

course on the taxpayer to make his case
(174).

As a general rule an injunction will
not lie to prevent the collection of an
income tax (86, 364, 365, 366, 368), but
if independent equities were presented it
seems a bill would lie (365). However,
more than a bare claim of unconstitu-
tionality or that allowance of the bill will
prevent a multiplicity of suits must be
made (365). It must be entirely clear
that the tax is unjustifiable (368), and
any doubt is sufficient for a denial of
the bill (idem). But a law which pro-
vides that all of a taxpayer's property
shall be subject to a lien until the assess-
ment is satisfied gives sufficient ground
for the intervention of equity on the
ground of removal of a cloud on title (241,
242). It seems too that the general rule
may be circumvented in the case of cor-
porations by a stockholder's bill to re-
strain the corporation from paying the
tax (225, 237), although at least one
court has held otherwise (369). Bills to
enjoin penalties are in the same class as
bills to enjoin taxes (367). And it is held
that the word "restrain" as used in Sec-
tion 3224, R. S., was intended in the broad
popular sense of hindering or impeding;
thus a suit to set aside a sale of land made

CYCLOPEDIC INDEX

31

to enforce collection will not be enter-
tained (366).

The government is not confined to
statutory methods of collection but may
sue for unpaid taxes (217, 220, 221, 334-A),
its remedy being an action of debt (idem).
The statute of limitations does not op-
erate against the government (356). But
see Section 250 (d), Act of 1918. If a
corporate taxpayer has since dissolved,
the government may follow corporate
assets into the hands of volunteers (392,
400). The government's claim for un-
paid taxes ranks ahead of general cred-
itors of a bankrupt estate but after ad-
ministration expenses (336), and no dis-
tribution to creditors can be made until
the taxes are satisfied (342).

The Commissioner with the advice of
the Secretary may compromise cases
arising under the internal revenue laws
(381, 382), except those being pressed
against the government (379). While no
compromise may be effected of taxes
legally due from a solvent taxpayer (376),
penalties and interest may be compro-
mised whether or not the taxpayer is
solvent (380), and liberal compromises
should be effected of penalties for failure
to make returns when no tax liability
exists (341). Although the law vests au-
thority to compromise in the Commis-

Government
may sue

Bankrupts

Compromises

32 CYCLOPEDIC INDEX

sioner, the payment of tax and an amount
in compromise to a revenue officer under
agreement that the matter is closed pre-
vents criminal prosecution, especially
where the amount is long retained in the
Treasury (381, 382). Whether a com-
promise was effected is a question for a
jury (381).
Executive As to authority and effect of executive

construction construction, see Statutory Construction.

AMERICAN INCOME TAX CASES

Case No. 1
Alpha Portland Cement Company y. United States,

261 Fed. 339 (C. C. A., 3d Circ.) 1919. Act of 1909.

(1) There was no income where a corporation, pur-
suant to a scheme of reorganization, organized another
corporation, conveyed to it properties constituting all its
assets, receiving therefor its entire capital stock, of greater
par value than the price originally paid for the proper-
ties by the first (vendor) corporation, distributed the
shares, after formally valuing them at par, among its own
stockholders, and then effected a merger between the two
corporations.

(2) When one party's evidence standing alone and un-
explained shows profits, yet when explained by evidence
of the other party, which is not inherently unreasonable,
improbable or inconsistent with that of the first party,
and the whole evidence is susceptible only of the inference
that there was no profit, the trial judge should give bind-
ing instructions to the jury so to find.

Reversing 257 Fed. 432 and 242 Fed. 978.

Case No. 2
Anderson v. Morris & £. R. Company,

216 Fed. 83 (C. C. A., 2d Circ.) 1914. Act of 1909.

The notion that a corporation is an artificial entity,
distinct from the members who compose it, is a fiction
of the law which the courts recognize for some purposes
and disregard for others. The fact that a lessee pays
rent, not to the corporate entity but to the stockholders

33

34 AMERICAN INCOME TAX CASES

and bondholders of the corporation, cannot prevent the
inclusion in the gross income of the corporation of the
money so paid, and the corporation is subject to tax with
respect thereto.

Case No. 3

Blalock v. Georgia Railway and Electric Company,
246 Fed. 387 (C.C.A., 6th Ore.) 1917. Act of 1909.

A corporation which has leased all of its property to
another corporation upon consideration that the latter
will pay fixed amounts to its stockholders in lieu of rent,
is nevertheless subject to tax on the amounts so paid as
its income, since though there is a difference in entity
between the corporation and its stockholders, the latter
are the real parties in interest, and receive the rents
in any event for the use of the lessor corporation's
property.

Case No. 4

Brewster v. Walsh,
268 Fed. 207 (D. C. Conn.) 1920. Act of 1916.

(1) Loss of interest on money invested in corporate
bonds is not an element of cost of the bonds to be ac-
counted when determining the value thereof for purposes
of ascertaining gain or loss.

(2) The difference between the value of investment
securities on March 1, 1913, and the amounts received for
such securities when sold in 1916 is not taxable as income
to the owner and seller of such securities, who is not a
dealer therein.

INCOME 35

Case No. 5

Cleveland, C, C. & St. L. Ry. Company v. United States,
242 Fed. 18 (C. C. A., 6th Circ.) 1917. Act of 1909.

The difference between the fair market value as of
January 1, 1909, of stock purchased before that date and
sold afterward, and the sales price, is income for the year
of sale.

Affirmed 247 U. S. 195.

Case No. 6

Collector v. Hubbard,
79 U. S. 1 (1870) Act of 1864.

(1) A statutory duty on collectors to pay immediately
into the Treasury all moneys collected, does not permit of
an implication of a promise by the collector to repay any
such moneys illegally collected, and the right to sue a
collector under such circumstances is statutory only.

(2) The prohibition of suits in any court before appeal
had to the Commissioner bars suits in state as well as
federal courts.

(3) There is no such thing as a vested right to sue the
government and legislation regulating such suits is effec-
tive as to all controversies save those already in suit.

(4) A statute providing that an individual stockholder
should include as income all corporate gains or profits to
which he should be entitled, ''whether divided or other-
wise" embraces and taxes his aliquot share of yearly prof-
its whether or not distributed as dividends for "annual
gains or profits whether divided or otherwise are property
and therefore are taxable."

36 DMERICAN INCOME TAX CASES

Case No. 7
Commonwealth v. Ocean Oil Company,

69 Penn. 61 (1868) State Act of 1864.

An oil corporation required by statute to return for
taxation its "net earnings or income" may not subtract
from gross income in arriving thereat the amount of paid-
in capital, particularly where the gross income less oper-
ating expenses has been paid out in dividends; and the
calculation used for dividend payments is the correct
method by which to determine net income, even though
the oil of the company is becoming less in quantity, through
recovery and sale.

Case No. 8
Commonwealth v. Pennsylvania Gas and Coal Company,

62 Penn. 241 (1869) State Act of 1864.

The value of coal removed by a mining company in the
course of operation is not to be deducted from receipts
when ascertaining "net income" subject to taxation, and
such net income is properly found by subtracting from
gross receipts the expenses incurred in operation.

Case No. 9
Edwards v. Keith,

224 Fed. 686 (D. C, E. D. N. Y.) 1916. Act of 1913.

(1) An insurance agent who is paid a commission upon
the writing of a policy, and further commissions as and
when the yearly premiums are paid by the insured is not
presently liable for income tax with respect to the amounts
which will be received in the future, since they are contin-
gent on payment by the insured of his premiums. This is

INCOME 37

not inconsistent with the holding in In re Wright, 151
Fed. 361, that under such a contract the right of the agent
to receive s;uch future and contingent premiums is a
vested property right under the Bankruptcy Law.

(2) It is immaterial to the right to tax the commissions
as income as and when received that the right to the in-
come taxed vested prior to the passage of the law or that
the income is partly the result of expenditures made before
that time.

Affirmed 231 Fed. 110; certiorari denied, 243 U. S. 638.

Case No. 10
Edwards v. Keith,

231 Fed. 110 (C. C. A., 2d Circ.) 1916. Act of 1913.

An insurance agent who is paid one commission at the
time of writing a policy and a further commission when
the successive premiums are paid, derives no income until
such premiums are paid, and he receives his further com-
missions, because there is no certainty that the sum condi-
tionally promised for an ensuing year will ever be paid or
will accrue or come due, notwithstanding Treasury De-
partment regulations that unpaid accounts, charges for
services, etc., ^f good and collectible should be included.
Thus, by way of illustration, a lawyer who argues a case
in 1915 should not include as taxable income any charge
on account thereof since his client might die insolvent
on January 1, 1916. One does not derive income by
rendering services and charging for them.

38 AMEBICAN INCOME TAX CASES

Case No. 11
Eisner v. Macomber,

262 U. S. 189 (1920). Act of 1916.

(1) Income may be defined as the gain derived from
capital, from labor, or from both combined, provided it be
understood to include profit gained through a sale or con-
version of capital assets.

(2) What is income is a question which must be deter-
mined in each case according to truth and substance
without regard to form.

(3) Income is essentially a gain or profit in itself of
exchangeable value, proceeding from capital, severed from
it, and derived or received by the taxpayer for his separate
use, benefit and disposal.

(4) A stock dividend takes nothing from the corporation
and gives nothing to the stockholder, and a tax on such
dividends is a tax on capital increase and not on income
and therefore invalid unless apportioned.

(5) Congress may not tax to corporate stockholders
without apportionment their interests in accumulated
earnings prior to dividend declared.

Dissenting opinion on the following grounds:

(1) A dividend in cash coupled with an option to pur-
chase stock is clearly taxable; a stock dividend differs
from this only in form, and should therefore likewise be
taxable.

(2) Stock dividends are commonly regarded as income.

(3) A dividend of bonds or preferred stock is taxable,
and there the so-called difficulty urged in the case of
taxation of a distribution of common stock, that there is
no segregation or division of gain, is present, and if
disregarded in the one case should be disregarded in the
other.

INCOME 39

(4) A statute should not be declared unconstitutional,
if on any reasonable grounds it can be held to be consti-
tutional.

Case No. 12
Galm v. United States,

39 Ct. Cls. 56 (1903). Act of 1862.

(1) The excess of travel allowances over amounts
actually expended for travel is taxable income under the
Act of 1862.

(2) Where the tax attached the right of the government
was not taken away by the repealing act.

Case No. 13
Gould v. Gould,

245 U. S. 151 (1917). Act of 1913.

(1) Alimony paid monthly by divorced husband to his
former wife does not decrease his net income subject to
income tax under the Act of 1913, nor does it constitute
taxable income in the hands of the wife.

(2) Taxing statutes should not be extended by con-
struction beyond the clear import of the language used,
and in case of doubt they are construed most strongly
against the government.

Case No. 14
Gray v. Darlington,

82 U. S. 63 (1872). Act of 1867.

An act taxing annual net income does not reach profits
derived from the sale of bonds held during a period of four
years, since they are not annual gains. Such an act ap-

40 AMERICAN INCOME TAX CASES

plies only to those gains, profits and income which are
strictly acquisitions made during the year preceding that
in which the assessment is levied and collected, unless it is
otherwise provided. "The mere fact that property has
advanced in value between the date of its acquisition and
sale does not authorize the imposition of the tax on the
amount of the advance. Mere advance in value in no
sense constitutes the gains, profits or income specified by
the statute. It constitutes and can be treated merely
as increase of capital."

Case No. 15
Gulf Oil Corporation v. Lewellyn,

242 Fed. 709 (D. C, W. D. Penn.) 1916. Act of 1913.

A parent corporation owning all of the stock of its
subsidiaries derives no taxable income by reason of the
declaration after 1913 of dividends out of earnings accu-
mulated by the subsidiary corporations prior thereto,
"because they were a distribution of surplus earnings
arising through a period of years and which had accrued
to, and the equitable ownership thereof was vested in the
plaintiff prior to January 1, 1913, and such earnings were
not intended by Congress to be subject to taxation."

Reversed 245 Fed. 1; affirmed 248 U. S. 71.

Case No. 16
Gulf Oil Corporation v. Lewellyn,

248 U. S. 71 (1918). Act of 1913.

Where five subsidiary corporations, all of whose stock
was owned by the taxpayer-corporation, declared divi-
dends in 1913 of profits earned before that year, entering
on their books a credit to the amount of the dividend but

INCOME 41

transferring no cash, no tax liability was incurred by the
parent corporation by reason of such declaration, as in
substance the dividend so declared was a mere bookkeep-
ing transfer of that which the taxpayer-corporation al-
ready owned, and "that practically had been converted
into capital."
Reversing 245 Fed. 1; affirming 242 Fed. 709.

Case No. 17
Halstead v. Pratt,

14 Haw. 38 (1902) Hawaiian Act of 1901.

(1) The value of a bequest or inheritance must be in-
cluded in gross income under a statute requiring such to be
included unless "otherwise taxed as such," and the legis-
lature intended, from the language of this law, to tax as
income the value of bequests and inheritances unless
taxed as such by the laws of Hawaii.

(2) A law which requires the inclusion in gross income of
money and personal property "acquired by gift or inheri-
tance" operates to require the inclusion of the value
thereof in gross income where the testator died before the
passage of the Act but the inheritance was not actually
paid over until thereafter, for "acquired" should be read
to mean "received," and it is immaterial that the legal
title was received by the taxpayer at the death of the
testator, before the incidence or the Act.

Dissenting opinion as to Point One.

42 AMERICAN INCOME TAX CASES

Case No. 18
Houston Belt & Terminal Railway Co. v. United States,

260 Fed. 1 (C. C. A., 6th Circ.) 1918. Act of 1909.

(1) A corporation is none the less liable for taxation
measured by its income because it was organized by four
other railroad corporations as a convenient means for
providing terminal facilities and was not intended to earn
profits and pay dividends.

(2) Where a corporation leases its property to other
corporations on consideration that the latter will pay to
the first corporation's creditors interest on its bonds, such
payment is to be considered as income of the lessor cor-
poration, and is to be computed as if the payments were
made to the lessor corporation as rent and by it paid to
the creditors as interest.

Case No. 19
In re Hayes,

16 Haw. 796 (1906). Hawaiian Act of 1901.

A taxpayer must include in gross income amounts
allowed and paid him by his employer for his expenses
during the year, since such amounts form "an actual part
of the taxpayer's income."

Case No. 20
Industrial Transit Company v. Walsh,

222 Fed. 437 (D. C, D. Conn.) 1916. Act of 1909.

A taxpayer owning bonds or other securities, and who
writes up the value on his books of such securities, does
not thereby add to his net income within the meaning of

INCOME 43

the Act of 1909, since such increase was not income of that
year, but had extended over a period of years.

Case No. 21
Ex parte Ives,

Fed. Cas. 7114 (D. C, D. Conn.) 1866. Act of 1864.

A provision that the "gains and profits of all companies
. . . shall be included in estimating the annual gains,
profits or income of any person entitled to the same,
whether divided or otherwise" does not require a stock-
holder to return as part of his income his proportionate
share of company profits, before dividends are made,
since before that time he is not "entitled to the same/'
at least where the corporation is using such gains in the
course of its business and without intent to defraud the
United States.

Case No. 22
Lewellyn v. Gulf Oil Corporation,

246 Fed. 1 (C. C. A., 3d Circ.) 1917. Act of 1913.

A corporation which owned all of the stock of five sub-
sidiary corporations on which a dividend was declared in
1913 of earnings accumulated prior to that time was
nevertheless taxable with respect to the amount of the
dividend declared, since each corporate entity was dis-
tinct from the others, and as to the taxpayer the dividends
were income in the year received.

Reversing 242 Fed. 709; reversed 248 U. S. 71.

44 AMERICAN INCOME TAX CASES

Case No. 23
Lumber Mutual Fire Insurance Company v. Malley,

256 Fed. 383 (D. C. Mass.) 1916. Act of 1909.

A corporation which purchases bonds at premium and
discount, and each year adds to or subtracts from, as the
case may be, the book value of the bonds, an amount
equivalent to the theoretical increase or decrease in value
due to approaching maturity receives no gain and sustains
no loss thereby.

Case No. 24
Lynch v. Hornby,

247 U. S. 339 (1918). Act of 1913.

(1) Under the Sixteenth Amendment Congress is em-
powered to tax as income everything that becomes income
in the ordinary sense of the word after March 1, 1913.
Thus dividends declared in the ordinary course of business
after the effective date of the Act are taxable as income to
the recipient whether paid from earnings made thereafter
or a surplus existing theretofore, even though the payment
reduces by so much the intrinsic worth of the stock, and
even though the payment represents in part or in whole a
conversion into cash and a distribution of the value of an
inchoate and intangible right which the stockholder had in
the undivided assets of the corporation on March 1, 1913.

(2) In view of the pendency of this litigation at the time
of the adoption of the Act of 1916, the express exception
made in that Act of dividends made from earnings acquired
before March 1, 1913, strengthens rather than weakens
this conclusion.

Reversing 236 Fed. 661.

INCOME 45

Case No. 25
Miller v. Gearin,

258 Fed. 225 (C. C. A., 9th Circ.) 1919. Act of 1913.

(1) Where a lessee who in 1907 erected a building on
land leased for a period of 23 years, which building under
the terms of the lease became the property of the lessor
when erected, defaulted the lease in 1916 and the lessor
then gained possession of the land and the building, the
value of the building was not income of 1916 to the lessor,
since he acquired nothing save the possession of that which
became his in 1907. The time the income was derived was
the time the completed building was added to the land.
"At that time it represented a prepayment to the lessor
of a portion of the rental, distributable over a period of 23
years."

(2) Doubt should be resolved in favor of the taxpayer.
Certiorari denied, 250 U. S. 667.

Case No. 26
New Orleans v. Hart,

14 La. Ann. 803 (1859). Local Act of 1866.

"Income" as used in the Act of 1856 is money received
in compensation for services, such as wages, commissions,
brokerage, etc., and is totally different from the fruits of
capital invested in merchandise, stocks, etc.

Case No. 27
Northern Pacific Railway Company v. Lynch,

T. D. 3048 (D. C. Minn.) 1920. Act of 1909. '

(1) Payments to a parent corporation made in fulfill-
ment of a contract between it and its subsidiary whereby

46 AMERICAN INCOME TAX CASES

the latter agreed to carry on work and pay the net proceeds
thereof to the parent, are not income to the parent corpo-
ration and they are not to be regarded as dividends even
though the parent owns all of the subsidiary's stock, since
the subsidiary is the agent of the parent, and tax liability
on account of such earnings has been satisfied by the
subsidiary corporation's return and payment of taxes.

(2) Proceeds of claims definitely ascertained before
January, 1909, but liquidated in 1913 are not income for
the year of liquidation.

Case No. 28
Northern Railway Company v. Lowe,

250 Fed. 856 (C. C. A., 2nd Circ.) 1918. Act of 1913.

A railroad company is subject to the tax imposed by the
Act of 1913, whether or not it is engaged in business.
Where it has leased all of its property to another corpora-
tion which in lieu of rent pays directly to the lessor's stock-
holders a fixed dividend on its stock and interest on its
bonds, its income includes the amounts so paid.

Case No. 29
21 Opinion Attorney General, 112,

Rendered by Richard Olney, January 2, 1896. Act of 1894.

Under the Act of 1894, mileage and commutation of
quarters paid to officers of the United States Army are to
be considered as parts of the incomes of such officers, and
are to be added to other income in order to ascertain the
total income.

INCOME 47

Case No. 30
31 Opinion Attorney General, 213,

Rendered by John W. Davis, Acting, January 26, 1918. Acts of 1916 and

1917.

Although it is the duty of every person to disregard an
Act of Congress in plain violation of the Constitution, yet
when the alleged violation is not plain, the Act must not
be disregarded but followed until set aside by the Supreme
Court. That court did not in the case of Towne v. Eisner,
245 U. S. 418, in plain terms declare Congress to be with-
out constitutional power to tax stock dividends, but held
only that Congress had not taxed them by the Act of
1913; the tax on such dividends specifically imposed
by the Acts of 1916 and 1917 should therefore be levied
and collected.

Case No. 31

30 Opinion Attorney General, 301,

Rendered by T. W. Gregory, June 26, 1918. Act of 1916.

Inasmuch as the method of computing net income by
taking into account inventories of goods valued at cost or
fair market value, whichever is lower, cannot be said not to
reflect clearly true income, the Commissioner with the
consent of the Secretary may permit by appropriate
regulations the filing of returns computed on this basis.
This rule is applicable as well to dealers in securities.

Case No. 32

31 Opinion Attorney General, 304,

Rendered by T. W. Gregory, June 26, 1918. Act of 1916.

The proceeds of an accident insurance policy received by
an individual on account of personal injuries sustained by

48 AMERICAN INCOME TAX CASES

him through accident "do but substitute, so far as they go,
capital which is the source of future periodical income.
They merely take the place of capital in human ability
which was destroyed by the accident. They are therefore
'capital' as distinguished from 'income' receipts," and
are exempt from income taxation.

Case No. 33
Opinion Attorney General, T. D. 3071,

Rendered by A. Mitchell Palmer, August 24, 1920. Act of 1918.

The earnings of husband and wife domiciled in Texas are
community income, and they may, in rendering separate
income tax returns, each report as gross income one-half
of the total earnings of both, one-half of the total income
from separate property and one-half of the total income
from property owned by the community.

Case No. 34
Osgood v. Tax Commissioner,

126 N. E. 371 (Mass.) 1920. State Act of 1916.

(1) A taxpayer who exchanged corporate stock in one
corporation for corporate stock in another corporation
formed to take over the assets and business of the first
corporation, there being no change in officers or business
or any change whatever except in the financial structure
and a slight change in name ("company" to "corpora-
tion") on a basis of two and one-half shares of new stock
for each share of old, received taxable income to the extent
of the difference between the fair market value of the old
stock at the incidence of the taxing act and the fair market
value of the new stock when received, under a statute
taxing "the excess of gains over the losses received by the

INCOME 49

taxpayer from purchases or sales of intangible personal
property. . . ."

(2) "Purchase" means "the acquisition of title to any
commodity for cash or credit or for any other equivalent
agreed upon."

(3) "Sale" means "the transfer of property from one
person to another for a consideration of value without
reference to the particular mode in which the consideration
is paid.

Case No. 35
Peabody v. Eisner,

247 U. S. 347 (1918). Act of 1913.

(1) A stockholder receiving dividends in cash and in
stock of another company is taxable upon the whole as
income, whether or not the fund from which such payment
came was in existence on March 1, 1913.

(2) A dividend paid in stock of another company is a
property dividend and must be included in taxable income.

Case No. 36
Pfister v. Widule,

163 N. W. 641 (Wise.) 1917. State Act of 1915.

(1) The Wisconsin courts will not inquire whether divi-
dends paid are from earnings or capital. All dividends
are presumed to be income in the hands of the recipient.

(2) Whether liquidating dividends, made on the can-
cellation of stock, should be so regarded is not decided.

50 AMERICAN INCOME TAX CASES

Case No. 37
Rensselaer & S. R. Company v. Irwin,

239 Fed. 739 (D. C, N. D. N. Y.) 1917. Act of 1913.

(1) A corporation which before passage of the Act of
1909 transferred its property to another corporation, the
latter agreeing to pay all operating expenses and in addi-
tion a fixed dividend on the first corporation's stock,
directly to the holders of that stock, is taxable with respect
to the amount so paid by the second corporation directly
to the stockholders of the first.

(2) It is immaterial that it has no cash revenues from
which to pay the tax.

(3) Where the plaintiff taxpayer stated in his pleading
all of the facts relevant thereto, and alleged there was no
income, the latter allegation is a conclusion of law, and is
not admitted by demurrer.

Affirmed 249 Fed. 726.

Case No. 38
Rensselaer & S. R. Company v. Irwin,

249 Fed. 726 (C. C. A., 2d Circ.) 1918. Act of 1913.

(1) A corporation does not escape income tax where,
maintaining its corporate existence, it has leased all of its
property to another corporation which operates it and
pays all expenses, and as consideration for the use thereof
pays to the stockholders of the lessor corporation divid-
ends at a fixed rate on their stock, since in law the
dividends are the income of the lessor corporation which
itself owes the duty to its stockholders of distributing
profits.

(2) The court is not concerned with how the govern-
ment is to collect, or the corporation to pay, the tax.

INCOME 51

Dissenting opinion by Judge Hough on the ground that
nothing was ever received by the taxpayer.
Affirming 239 Fed. 739.

Case No. 39
Rensselaer & Saratoga Railway Company v. Irwin,

262 Fed. 921 (D. C, N. D. N. Y.) 1918. Act of 1913.

Where a lessee railroad company has agreed to pay
directly to the stockholders of the lessor company divi-
dends on their stock by way of rent, and has stamped on
their stock an agreement to this effect, a bill by the lessor
corporation to declare an equitable lien against the moneys
in the hands of the lessee held for the purpose of paying
the dividends mentioned, the lessor having no other means
by which to effect payment of income taxes will not he
unless all stockholders are parties, by publication or
otherwise.

Case No. 40
Sargent Land Company v. Von Baumbach,

207 Fed. 423 (D. C, Minn.) 1913. Act of 1909.

(1) Where numerous owners of property combined their
holdings for convenient management and transferred them
to a corporation organised for the purpose in consideration
of all of the capital stock thereof, in amount less than the
value of the property, no taxable income arises to the
corporation by reason of the transaction.

(2) Nor does the corporation receive "gross income" in
the royalties paid to it by lessees under a mining lease,
since the royalties in reality represent return of capital,
and income is "something produced by capital without
impairing that capital and which leaves the capital intact

52 AMEKICAN INCOME TAX CASES

and nothing can be called income which takes away from
the capital itself."
Affirmed 219 Fed. 31 ; reversed 242 U. S. 503.

Case No. 41
Scott v. Schwab,

265 Fed. 67 (C. C. A., 9th Circ.) 1919. Act of 1909.

Where property is sold by a corporation at an advance
over the original purchase price the amount of such ad-
vance is a gain or profit received during the year for the
purpose of computing net income under the Act of 1909.

Case No. 42
Skinner v. Union Pacific Coal Company,

249 Fed. 162 (C. C. A., 8th Circ.) 1918. Act of 1913.

(1) Where all of the capital stock of one corporation is
owned by another, the entire amount of dividends declared
thereon is income to the stockholding corporation even
though half of the profits out of which it was paid were
earned before the effective date of the Act.

(2) There is no difference in meaning between "arising
and accruing" as used in the Act of 1913, and "received."

(3) The true test whether a dividend is taxable is
whether it represents a division of profits earned by the
corporation, or a division of its capital.

Affirmed, 252 U. S. 570.

Case No. 43
Southern Pacific Company v. Lowe,

238 Fed. 847 (D. C, S. D. N. Y.) 1917. Act of 1913.

A corporation which owns all of the stock of another
corporation, must include as income in the year of receipt

INCOME 53

amounts received by way of dividends from the latter,
unless the dividends were a capital distribution, and this is
true regardless of the degree of control exercised and
although all that comes in is not income.
Reversed 247 U. S. 330.

Case No. 44
Southern Pacific Railway Company v. Lowe,

247 U. S. 330 (1918). Act of 1913.

(1) When a corporation which owns all the stock of
another, and leases the other's property, being entirely in
control of all assets of that other, including cash on hand,
causes a dividend to be declared after March 1, 1913, on
the stock of the subsidiary corporation, such dividend is
not taxable income to the parent corporation since the two
corporations are one in substance and the parent has al-
ready received the use and benefit of the moneys compris-
ing the dividend before the effective date of the Act; and
this is true even though the books are separately and
distinctly kept.

(2) That which a corporation owned on March 1, 1913,
was capital and mere conversion from one form to another
thereafter does not give rise to income, for all that comes in
is not income.

Reversing 238 Fed. 847.

Case No. 44 A
State ex rel. Brenk v. Widule,

164 N. W. G96 (Wise.) 1915. State Act of 1913.

That a devise of land may be taxed as income is as-
sumed but not decided, because if so taxable a devise

54 AMERICAN INCOME TAX CASES

received from sources without the State is not taxable to
residents of Wisconsin, under the state statute.

Case No. 45
State ex rel. Bundy v. Nygaard,

158 N. W. 87 (Wise.) 1916. State Act of 1913.

(1) That which was owned when the income tax law
became effective was capital; therefore, where an invest-
ment made in 1907, had appreciated in value until 1911
(effective date of law) and not at all thereafter, no taxable
income was realized by sale in 1914.

(2) " Income "isusedinits" common ordinary meaning
as the word is used in every day life," provided that it be
money or something equivalent thereto.

Case No. 45 A
State ex rel. Hickox v. Widule,

163 N. W. 648 (Wise.) 1917. State Act of 1916.

(1) Under the Wisconsin law, only those taxes paid on
productive property may be deducted.

(2) Although an annuity the present value of which
has been taxed to the beneficiary under a transfer tax law
is not taxable to such beneficiary as income, the income
from which such annuity is paid is taxable to the trustees
making the payments.

Case No. 45 B
State ex rel. Howe v. Lee.

178 N. W. 471 (1920). State Act of 1911.

A stockholder in a corporation which sells out to an-
other corporation must return as income the difference

IXCOMB 55

between the value of the shares in the old company as of
the incidence of the taxing act, which he gives up, and
the cash plus the fair market value of the shares in the
new company which he receives. The value of the stock
disposed of is its actual and not its book value, and is
determined by sales prices or other evidence; the value of
the stock received is the value placed thereon by the
parties if reasonable or failing that the market value
thereof. In the absence of any evidence as to such value
it will be deemed to be worth par.

Case No. 45 C
State ex rel. Kempsmith v. Widule,

154 N. W. 696 (Wise.) 1915. State Act of 1913.

When a decedent has bequeathed a yearly payment to a
beneficiary for life and such annuity is appraised at its
present worth at the time of decedent's death and a
transfer tax exacted from the beneficiary, the annuity
payments are not taxable income to the beneficiary as
and when paid.

Case No. 46
State ex rel. Sallie F. Moon Company v. Commission,

163 N. W. 639 (Wise.) 1917. State Act of 1911.

(1) Dividends distributed after the passage of the in-
come tax law are conclusively presumed to be income, and
are taxable regardless that they come from surplus on hand
when the law was passed.

(2) An income tax is a personal tax, not a property tax,
although it is measured by the amount of property re-
ceived as income. It is a tax on "the right or ability to
produce, create, receive and enjoy."

56 AMERICAN INCOME TAX CASES

Case No. 47
Stoffregan v. Moore,

264 Fed. 232 (D. C, E. D. Mo.) 1920. Act of 1913.

A stockholder is liable for income tax with respect to the
amount of dividends declared on stock owned by him, even
though such dividends comprise surplus earned over a
period of fifteen years prior to the enactment of the law,
except that the taxable dividends are to be reduced by
"the sum in cash paid by plaintiff ... for the interest
in the company. . . ."

Case No. 48
Stone v. Tax Commissioner,

126 N. E. 373 (Mass.) 1920. State Act of 1916.

A taxpayer who exchanges shares of stock worth $165
per share for four shares of stock in another corporation,
and later exchanges the latter stock share for share for
stock in still another corporation, worth at the time of
exchange $51 per share, the last corporation at the same
time acquiring assets of three other and different corpora-
tions, thus conducting activities much greater in scope
than those of the first two corporations, receives taxable
income in an amount equal to the difference between one-
fourth of $165 and $51, i. e., the cost of each share ex-
changed, as opposed to the fair market value of each share
received, "even more plainly than in that case" (Osgood
v. Tax Commissioner, 126 N. E. 371).

INCOME 57

Case No. 49
Stratton's Independence v. Howbert,

231 U. S. 399 (1913). Act of 1909.

(1) Income is the gain derived from capital, from labor
or from both combined, and includes gain from mining
operations, even though such construction may involve
some inequality of operation as between mining corpora-
tions, and other corporations, since every production of
gain entails some wastage, such as earnings of the human
hand and brain. ' ' It was reasonable that Congress should
fix upon gross income, without distinction as to source
. . . and from this point of view, it makes little difference
that the income may arise from a business that theoreti-
cally or practically involves a wasting of capital."

(2) A corporation mining ores from its own premises is
not entitled to deduct from the proceeds of the ores mined,
as depreciation, any amount representing the value of the
ore in place which was removed from the ground.

Case No. 50
Towne v. Eisner,

242 Fed. 702 (D. C, S. D. N. Y.) 1917. Act of 1913.

(1) Stock dividends paid out of earnings accumulated
prior to March 1, 1913, are taxable as income under the
Act of 1913 in the year of receipt.

(2) Gains and profits from business can only be taxed
by virtue of ownership of the property from which they
are derived.

Reversed 245 U. S. 418.

58 AMERICAN INCOME TAX CASES

Case No. 51
Towne v. Eisner,

246 U. S. 418 (1918). Act of 1913.

The value of new shares of stock, issued as a stock divi-
dend against earnings accumulated prior to March 1, 1913,
is not taxable as income under the Act of 1913, since "a
stock dividend really takes nothing from the property of
the corporation and adds nothing to the interests of the
shareholders."

Reversing 242 Fed. 702.

Case No. 62
Trefry v. Putnam,

116 N. E. 904 (Mass.) 1917. State Act of 1916.

(1) Profits made through purchase and sale of intangible
property are taxable under the Massachusetts Income
Law, without violating the constitution, as such profits are
income within the common understanding of the term
("the amount of actual wealth which comes to a person
during a given period of time"), even though the person
taxed is not a dealer in the property.

(2) The amount for which rights to subscribe to stock
are sold is income.

(3) Stock dividends payable out of earnings before the
tax law became effective are taxable as income in the year
in which paid.

(4) Likewise as to cash dividends.

INCOME 59

Case No. 63
Union Hollywood Water Company v. Carter,

238 Fed. 329 (C. C. A., 9th Circ.) 1917. Act of 1909.

(1) Receipts of a corporation from contracts for service
connections and pipe extensions must be included in gross
income even though to fulfill the contracts the corporation
is forced to invest practically all of such receipts in capital
items, enhancing the value of its plant; and no deduction
can be allowed for such expenditures because they are
capital investments.

(2) A public service corporation is not ipso facto exempt.

(3) That such improvements may not, under state
commission rulings, be included in valuation of plant when
computing what is a fair return, is immaterial.

Case No. 54
United States v. Alpha Portland Cement Company,

242 Fed. 978 (D. C, E. D. Pa.) 1917. Act of 1909.

The question, whether or not income resulted from
transactions involving corporate reorganization, is a ques-
tion of fact for a jury, and cannot be resolved on the
equivalent of a demurrer.

Reversed 261 Fed. 339. See 257 Fed. 432.

Case No. 55
United States v. Alpha Portland Cement Company,

267 Fed. 432 (D. C, E. D. Penn.) 1919. Act of 1909.

(1) The Court will not by awarding a new trial deprive
the government of the advantage of a jury verdict that
income resulted from a transfer of corporate property to a
new corporation at a price paid in stock of the purchaser in

60 AMERICAN INCOME TAX CASES

excess of the value of the property, even where the eviden-
tiary facts are not disputed, and where the court would
conclude differently than the jury.

(2) In the opinion of the court, no income results to a
corporation selling its property to another corporation for
stock of the latter greater in par value than the value of
the property, when the two corporations later merge, since
"income" as used in the taxing act means something
"actually received and not . . . something which exists
merely as a figment of the imagination."

Reversed (concluding that no income resulted) 261
Fed. 339.

Case No. 66
United States v. Christine Oil and Gas Company,

D. C, W. D. La., September 8, 1920. Act of 1913.

(1) The obligations of a solvent purchaser of property
to pay therefor in the future, are not income received and
no income tax can be assessed against the vendor with
respect thereto, but the result would be different if the
obligations given were notes of a third party, taken by the
vendor in absolute payment for the property.

(2) The right of the Secretary of the Treasury to make
reasonable rules and regulations does not vest in him
authority to broaden the scope of the law, and to tax as
income that which is not in truth income.

Case No. 57
United States v. Cleveland, etc., R. Company,

247 U. S. 195 (1918). Act of 1909.

A corporation which in 1900 purchased shares of an-
other corporation's stock at one price and sold them at a
greatly increased price in 1909 must include in gross in-

INCOME 61

come so much of the profit as accrued after January 1,
1909, the effective date of the Act. This amount is to be
determined by deducting from the sales price the inven-
tory (or market) value on January 1, 1909, of the stock
sold.
Affirming 242 Fed. 18.

Case No. 68
United States v. Frost,

Fed. Cas. 15172 (D. C, N. D. 111.) 1869. Act of 1864.

Whether or not promissory notes, book accounts, etc.,
are gains, profits or income depends upon their value
intrinsically or their convertibility into money, property
or valuable assets. If they have only a nominal and not a
real value or convertible equality and the taxpayer has
realized nothing from them and therefore does not return
them as a part of his income because he fairly and honestly
believes that they are not real gains or profits he cannot
be convicted of an untrue return.

Case No. 59
United States v. Guggenheim Exploration Company,

238 Fed. 231 (D. C, S. D. N. Y.) 1917. Act of 1909.

Mere bookkeeping entries can have no great weight in
determining whether income was received. Thus, the sale
of stock carried on the books at a value of $1, for six
million dollars, resulted in no income where it was shown
by the resolution of the board of directors when purchas-
ing the stock, and other evidence, that the stock sold was
worth at the time of acquisition as much' as the price for
which it later was sold.

62 AMERICAN INCOME TAX CASES

Case No. 60
United States v. Guinzburg,

D. C, S. D. N. Y., October 22, 1920. Act of 1913.

A dividend declared in January, 1913, and payable in
July, 1913, is not taxable as income, for the right of the
stockholder from which the dividend flowed was com-
pletely vested and had become the stockholder's capital
before the passage of the Act, and the payment repre-
sented a mere conversion of capital assets.

Case No. 61
United States v. Long,

D. C. Mont., January 16, 1920. Act of 1909.

(1) Crops produced by a farmer, not sold, but fed to
livestock are not to be included in income by which the
tax is measured.

(2) Receipts from sales of wool on hand at the incidence
of the act are not income, such sales being mere conver-
sions of capital assets.

(3) Where the income upon which a taxpayer has com-
puted his tax is in excess of his true net income, no addi-
tional taxes can be collected from him on the ground that
an erroneous deduction has been made from gross income,
where the effect of such error is more than offset by the
inclusion in gross income of items not taxable.

Case No. 62
United States v. O. R. & N. Company,

251 Fed. 211 (C. C. A., 2d Circ.) 1918. Act of 1909.

Where the sole stockholder of a corporation released
without consideration a debt owing to him by the corpora-

INCOME 63

tion, the result was an increase in the corporation's capi-
tal assets and not income to it.

Dissenting opinion by Judge Ward, on the ground that
the term income comprehends "gifts," unless restricted,
that this was a gift and income within the ordinary accep-
tation of the word, pointing out that the Acts of 1913,
1916 and 1917 "expressly provide that only the income
from gifts is to be taxed from which it would be inferred,
that but for this provision, the gifts themselves would
have been taxed as income."

Case No. 63
United States v. Phil., B. & W. R. Company,

262 Fed. 188 (D. C, E. D. Penn.) 1920. Act of 1909.

(1) Stock dividends are not income within Act of 1909.

(2) The doctrine of Southern Pac. Co. v. Lowe is to be
confined to the peculiar circumstances there found, and
when one corporation holds stock in another, dividends
thereon are income of the year in which received, unless
the declaring company and the stockholding company are
in reality the same.

(3) The income tax is a direct tax.

(4) An excise tax measured by income should regard
only such income as results from the business carried on,
as a result of the privilege for which the tax is levied. The
courts cannot, however, disregard Congress' manifest
intention otherwise to measure the tax.

64 AMERICAN INCOME TAX CASES

Case No. 64
United States v. Schillinger,

Fed. Cas. 16228 (Circ. Ct., S. D. N. Y.) 1876. Act of 1870.

Under Section 6, Act of 1870, a promissory note not
presently due is not taxable income for the year of its
receipt. ' ' In the absence of any special provision of law to
the contrary, income must be taken to mean money and
not the expectation of receiving it, or the right to receive
it at a future time. In this case the defendant changed
his patent rights for promissory notes payable in the
future. Their value was uncertain, they might or might
not be paid; but until they were paid, they were not in-
come but only the ground of expecting income. The notes
were no more taxable as income than would have been
other patent rights if the defendant had received them in
payment of those he sold. There are in the next section
of the Statute (Section 7) provisions which confirm this
construction. It makes interest received or accrued on all
notes, bonds or mortgages or other forms of indebtedness
bearing interest whether paid or not if good and collectible
subj ect to the income tax. The purpose of this is evidently
to prevent a man escaping the income tax by abstaining
from taking that which is due him. On the same principle,
had these notes been due and had the defendant allowed
them to remain unpaid there might have been room to
contend that their amount should be regarded as income
but not being due when the income had become fixed for
the year they were no part of the defendant's income."

INCOME G5

Case No. 65
United States v. Silver King Consolidated Mining Co.,

D. C, Utah, October 16, 1919. Act of 1913.

The payment to defendant in 1913 of compensation for
having wrongfully extracted ore from defendant's mine in
1908 was not taxable as income, for if such payment were
income at all it was earned long before the taxing statutes
were enacted, and as matter of fact the claim liquidated
was a part of the capital assets of the company in 1908,
and liquidation was no more than a conversion from one
form of assets into another.

Case No. 66
United States v. Smith,

Fed. Cas. 16341 (D. C, Calif.) 1870. Civil War Acts.

(1) Under the Acts of 1861, 1862, 1864, 1865 and 1867,
an exchange of one kind of property for another, such as
stock for land, is not a "sale" which may result in income,
as the transaction is not closed and completed until the
thing received is converted into cash or its equivalent.

(2) But a transfer of stock for which the seller takes a
promissory note is to be considered a sale for cash provided
the note is good and collectible and an exchange of stocks
for land followed by a sale of the land within the year for
cash or good and collectible notes is to be considered as a
sale of stocks for so much cash.

66 AMERICAN INCOME TAX CASES

Case No. 67
United States Glue Company v. Oak Creek,

163 N. W. 241 (Wise). State Act of 1911.

(1) A statute imposing on incomes of persons engaged
in business within and without the state as to income de-
rived "from business transacted and property located
within the State" reaches income derived from manufac-
ture, sale and delivery of products manufactured, sold and
delivered from a factory within the state to customers
located within and without the state, and that derived
from products manufactured in the state and shipped to
branch houses out of the state, whence delivery made to
customers on sales made either within or without the state.
Sales of goods outside the state do not affect the source of
income, which is the place the business is carried on.

(2) The statute does not reach income derived from
purchases outside the state of goods shipped into the state
and sold to customers outside the state.

(3) Taxation of income enumerated in (1) does not
impose an unconstitutional burden on interstate com-
merce.

Affirmed 247 U. S. 321.

Case No. 68
Von Baumbach v. Sargent Land Company,

219 Fed. 31 (C. C. A., 8th Circ.) 1914. Act of 1909.

(1) A corporation which prior to January 1, 1909, had
leased lands in Minnesota on a royalty basis thereby
acquired valuable rights which must be capitalized as of
that date; royalties received thereafter are income only to
the extent they exceed the capital value destroyed by their
payment, the leases being in effect sales of the ore in place.

INCOME 67

(2) If the royalties were income, then the leases being
depreciated by so much, the corporation is entitled to an
allowance therefor as depreciation.

(3) "Income" does not arise from capital conversion
into other forms of capital without gain or profit.

Affirming 207 Fed. 423; reversed 242 U. S. 503.

Case No. 69
Van Dyke v. Milwaukee,

146 N. W. 812 (Wise.) 1914. State Act of 1913.

(1) Dividends are taxable income the year in which
received, under a statute taxing all dividends as "income,"
because "income" is used in its common ordinary mean-
ing; and it is immaterial from what source the dividends
flow as they "will conclusively be presumed as against
stockholders to be earnings or profits." But whether
liquidation dividends are taxable is not decided.

(2) The fall in book value of stock due to the payment
of dividends is not a deductible loss.

(3) Under a statute taxing as income "all interest
derived from money loaned," a purchaser of bonds at a
premium may not deduct each year by way of amortiza-
tion the theoretical decrease in capital value due to ap-
proaching maturity as it was not contemplated by the law
and it is not certain that the bondowner may not sell his
bonds at a premium greater even than that which he paid.

On rehearing (150 N. W. 509) affirmed. Dissenting
opinion filed by Justice Barnes, protesting against the
construction given to "income" in declaring a conclusive
presumption that all dividends from whatever source
are income.

68 AMEKICAN INCOME TAX CASES

Case No. 70
Waring v. Savannah,

60 Ga. 93 (1878) City Act of 1875.

"Income" is not property within meaning of Georgia's
constitution and a tax thereon is not therefore in violation
of a constitutional provision that "taxes shall be ad valorem
only and uniform on all species of property taxed," be-
cause it taxes income at one rate and real estate at another
and different rate, since, "the fact is, property is a tree;
income is the fruit; labor is a tree; income, the fruit;
capital, the tree; income, the fruit. The fruit if not con-
sumed as fast as it ripens, will germinate from the seed
which it encloses, and will produce other trees, and grow
into more property; but so long as it is fruit merely and
plucked to eat, and consumed in the eating, it is no tree,
and will produce itself no fruit."

Case No. 71
West End Street Ry. Company v. Malley,

246 Fed. 625 (C. C. A., 1st Circ.) 1917. Act of 1913.

A street railway company which has leased all of its
property to an operating company in consideration of the
latter's promise to pay a fixed dividend directly to the
former company's shareholders, is subject to income tax
with respect to the amounts so paid by the lessee to the
lessor's stockholders.

Dissenting opinion on the ground that nothing was re-
ceived by the taxpayer, and the result reached amounts to
double taxation — once to the lessor corporation, and
once to its stockholders.

Certiorari denied, 246 U. S. 671.

INCOME 69

Case No. 72
Wilder v. Trefry,

125 N. E. 689 (Mass.) 1920. State Act of 1916.

Where a corporation compromised its obligation to pay
dividends on its preferred stock with stockholders in whose
favor unpaid dividends to the extent of 33 1/3 per cent, had
accumulated by paying 7 1/2 per cent, cash, 14 per cent, in
preferred stock and 12 per cent, in common stock, taxable
income was received by them under a statute taxing as
income "dividends on shares," since the payment was
designated as a "dividend," and that was essentially its
nature. "The word 'dividend' carries no spell with it,
... as ordinarily used it is that portion of the profits
which a corporation sets apart for its shareholders."

Case No. 73
Woods v. Lewellyn,

252 Fed. 106 (C. C. A., 3d Circ.) 1918. Act of 1913.

(1) Commissions paid an insurance agent after 1913 on
policies secured by him before then are income in the
ordinary sense of the word and are taxable, for even though
there was a certain right on March 1, 1913, which was
substituted by the payments of commissions, that right
was only contingent upon payments of premiums by the
policyholders which might never be made.

(2) Expenses incurred before March 1, 1913, in produc-
ing income received after that time cannot be deducted in
the absence of provision therefor by Congress.

(3) "False" as used in paragraph E of the Act
means "untrue" or "incorrect" as opposed to "fraudu-
lent."

70 AMERICAN INCOME TAX CASES

Case No. 74
Baldwin Locomotive Works v. McCoach,

215 Fed. 967 (D. C. E. D. Penn.) 1914. Act of 1909.

(1) Appraisal upward of property does not result in
income.

(2) Sale of bonds at a discount by obligor does not result
in deductible loss in year of sale, as loss if it occurs at all
(which it does not if the bonds are never paid) occurs when
the bonds are taken up.

Affirmed 221 Fed. 59.

Case No. 75
Baldwin Locomotive Works v. McCoach,

221 Fed. 59 (C. C. A., 3d Circ.) 1916. Act of 1909.

(1) A corporation which sells its promises to pay (in the
form of mortgage bonds) $10,000,000 thirty years hence
for $9,500,000 realizes no deductible loss in the year of sale.
"In effect the transaction transmuted a part of the corpo-
ration's assets from credit or property into liquid cash, but
it added nothing to its income. If the cost of thus chang-
ing the form of its assets is an expense of the business, it
has not yet been paid, and will not be paid until 1940."

(2) Appraisal upward of corporate property is not
income.

Affirming 215 Fed. 967.

Case No. 76
Chicago & Alton Ry. Company v. United States,

53 Ct. Cls. 41 (1917). Act of 1909.

When a railroad corporation issued bonds and notes at
a discount in 1906, and charged off as a loss in that year the

GAIN OR LOSS, TIME OF REALIZATION 71

total amount of the discount, making its returns in 1911
and 1912 without claiming a proportionate part of the
discount which it in this action claims is apportionable to
that year, a suit against the United States will not avail to
recover the saving in tax which might have resulted in 1911
and 1912, had the books been kept in such manner as to
charge the income of those years with an aliquot portion
of the total discount, relying on Maryland Casualty Co.
v. United States, 52 Ct. Cls. - 201.

Case No. 77
Cryan v. Wardell,

263 Fed. 248 (D. C, N. D. Cal.) 1920. Act of 1916.

Where a lessee, pursuant to the terms of a lease of land
for twenty-six years, made in 1908, erected a building on
the land leased, completing it in 1910, forfeited the lease
in 1916, the lessor then reentering the premises, the value
of the building erected under the lease is not income to the
lessor for 1916, since "whatever accession of value resulted
to plaintiff's property from the erection of the building in
question accrued and became vested in her in 1910," be-
fore the incidence of the Act.

Case No. 78
Doyle v. Mitchell Brothers,

235 Fed. 686 (C. C. A., 6th Circ.) 1916. Act of 1909.

(1) Only the difference between the value of property
sold, as of the incidence of the taxing act, and the sale
price, is income, and this is as true of standing timber as of
other capital assets. Therefore, there is no tax liability
where appreciation, realized by sale after January 1, 1909,
all occurred before that time.

72 AMERICAN INCOME TAX CASES

(2) "Income received need not be in cash. If in the
regular course of business, property has been sold and is
represented by a bill or account receivable it is no undue
stretch of imagination to say that these proceeds are in-
come received."

Affirming 225 Fed. 437; petition for rehearing denied
239 Fed. 719; affirmed 247 U. S. 179.

Case No. 79
Doyle v. Mitchell Brothers Company,

247 U. S. 179 (1917). Act of 1909.

A corporation owning its own timber lands, and engaged
in the business of cutting and manufacturing stumpage
into finished product, may deduct for the purpose of com-
puting net income on which the excise tax imposed by the
Act of 1909 is based, the value as of January 1, 1909, of all
stumpage cut during the year, since property owned at
that time then became capital for the purpose of the act,
and realization after the effective date of the act of appre-
ciation occurring before that date, was not taxable there-
under.

Affirming 235 Fed. 686, and 225 Fed. 427.

Case No. 80
Gauley Mountain Coal Company v. Hays,

230 Fed. 110 (C. C. A., 4th Circ.) 1915. Act of 1909.

A corporation which purchased in 1902 shares of stock
in another corporation and sold them at a greatly increased
price in 1911 is not liable for excise tax with respect to so
much of the profit as accrued after January 1, 1909, since
the tax imposed is intended to take into account only
profits accruing during the year of assessment, and not

GAIN OR LOSS, TIME OF REALIZATION 73

those resulting from many years of accretion, relying
on Gray v. Darlington (q. v.).
Reversed 247 U. S. 189.

Case No. 81
Hays v. Gauley Mountain Coal Company,

247 U. S. 189 (1918). Act of 1909.

A corporation which purchased in 1902 shares of stock
for $800,000 which it sold in 1911 for $1,010,000, is liable
to tax under the Act of 1909 with respect to so much of the
gain as is attributable to the period between January 1,
1909, and the sale, and a deduction may not be made from
the profit of the amount the investment would have earned
had it been placed at interest. In the absence of a better
means of measurement, it is permissible to prorate the
entire profit allocating as taxable the same proportion as
the number of days elapsing after January 1, 1909, bears
to the total time the stock was. held.

Reversing 230 Fed. 110.

Case No. 82
Jackson v. Smietanka,

267 Fed. 932 (D. C, N. D. 111.) 1920. Act of 1918.

A taxpayer who keeps no books of account, and to whom
is paid, upon the termination of services extending over a
period of years a lump sum in amount not previously
agreed upon, as compensation for such services, must
return as income in the year in which received, the entire
amount so paid him, even when such payment is followed
by a statement apportioning the compensation over the
years in which the services were rendered.

74 AMEEICAN INCOME TAX CASES

Case No. 83
Lynch v. Hornby,

236 Fed. 661 (C. C. A., 8th Circ.) 1916. Act of 1913.

Dividends received by a stockholder in 1914 as a result
of the conversion into money of property owned by the
corporation on March 1, 1913, and which on that date was
worth the amount subsequently realized, are not income
accruing after March 1, 1913, to the stockholder and are
not taxable as such. The original cost of the property is
immaterial.

Reversed 247 U. S. 339.

Case No. 84

Lynch v. Turrish,
236 Fed. 663 (C. C. A., 8th Circ.) 1916. Act of 1913.

The surrender by a stockholder of his stock, in 1914, for
cash in amount not exceeding the fair market value of the
stock as of March 1, 1913, works no taxable gain to him,
since such gain as he realized accrued prior to March 1,
1913, and the (liquidating) dividend cannot be said to be
"income, gains, profits" of the year 1914.

Affirmed 247 U. S. 221.

Case No. 85
Lynch v. Turrish,

247 U. S. 221 (1918). Act of 1913.

A stockholder in a corporation formed in 1903 to buy and
sell timber lands, whose stock had increased greatly in
value prior to March 1, 1913, but not at all thereafter
when it was surrendered (in 1914) as the result of a liqui-
dating dividend, is not liable for income tax on the increase

GAIN OR LOSS, TIME OF REALIZATION 75

realized by the surrender, because the gain if taxable at all
occurred before the incidence of the Act.
Affirming 236 Fed. 653.

Case No. 86
Magee v. Denton,

Fed. Cas. 8943 (C. C, N. D. N. Y.) 1863. Act of 1862.

(1) When a dividend has been declared by a corpora-
tion, and become payable, the mere omission of the stock-
holder to obtain or receive the dividend subject to his call
would not excuse him from embracing the amount of such
dividend in his statement of his taxable income for the
year.

(2) A court of equity cannot give relief against the
assessment of a tax claimed to be illegal where there exists
a complete remedy at law.

Case No. 87
Mitchell Brothers v. Doyle,

225 Fed. 437 (D. C, W. D. Mich.) 1915. Act of 1909.

A corporation which purchased timber lands in 1903
and which in computing income for the purposes of the Act
of 1909 deducted from the sales price the 1909 value of the
timber, rather than the 1903 value, correctly determined
its income, since the appreciation occurring between 1903
and 1909 was nontaxable even though it was realized after
the effective date of the law. There is no substantial
difference between the proceeds received from the conver-
sion of timber into a finished article and those from the
conversion of wheat, cotton or iron, although semble a
different rule might apply to minerals.

Affirmed 235 Fed. 686, and 247 U. S. 179.

76 AMERICAN INCOME TAX CASES

Case No. 87 A
United States v. C, C, C. & St. L. Ry. Company,

D. C, S. D. Ohio, February 23, 1916. Act of 1909.

Where an employee of a taxpayer has embezzled his
employer's money for a period of years, which fact is
discovered later, the amount of the loss is not deductible in
the year discovered, as the losses were sustained at the
time the embezzlement occurred.

Case No. 88
Bayfield Co. v. Pishon,

166 N. W. 463 (Wise.) 1916. State Act of 1911.

A statute which imposes an income tax on the income of
nonresidents as to such income as is "derived from sources
within the state or within its jurisdiction" does not reach
income on stocks, bonds and other securities held in trust
outside the state by a citizen of another state and paid to
nonresidents even where the trust was created by the
will of a resident, probated within the state, and the
trustee was appointed by, and derived all of his powers
and authority from the court of the state imposing the
tax.

Case No. 89
DeGanay v. Lederer,

239 Fed. 568 (D. C, E. D. Pa.) 1917. Act of 1913.

(1) An act imposing a tax on "the entire net income
from all property owned ... in the United States by
persons residing elsewhere" applies to the income from
corporate stocks and bonds physically within this country,
as the present day conception of property which Congress

SOURCES OF INCOME 77

is presumed to have used includes intangibles such as those
enumerated, even though the owner is nonresident as to
the United States.

(2) Great weight will be given to construction of stat-
utes by departments charged with the execution of them.

(3) Revenue statutes are to be construed so as to pro-
mote their real purpose.

(4) The principle of a strict construction in favor of the
taxpayer has been repudiated at least within the federal
jurisdiction.

Affirmed 250 U. S. 376.

Case No. 90
DeGanay v. Lederer,

260 U. S. 376 (1919). Act of 1913.

The income from bonds secured by property within the
United States and from corporate stock of corporations
domiciled therein is income from property within the
United States when such bonds and stock are actually
held within the United States, even when the owner of
such bonds and stocks is a noncitizen residing outside the
United States, for the maxim that personal property is
situated at the domicile of the owner is a fiction at best and
must yield to facts and circumstances of cases which
require it.

Case No. 91
H. P. Hood & Sons v. Commonwealth,

127 N. E. 497 (Mass.) 1920. State Act of 1918.

Income derived from the purchase of raw milk outside
the state, transportation to within the state, pasteuriza-
tion, bottling and delivery there, is income from sources
within the state and not from interstate commerce, be-

78 AMERICAN INCOME TAX CASES

cause ' ' the net income is derived wholly, so far as measured
in cash receipts from these retail or wholesale sales from
stock, which previously has become part of the common
stock of merchandise within the commonwealth," and
interstate commerce was only utilized as a preliminary
step to the production of the income.

Case No. 92
Maguire v. Trefry,

263 U. S. 12 (1920) Mass. State Act of 1916.

A state may levy an income tax on the income received
by a resident from property held in trust in another juris-
diction and administered under the laws there, for the
recipient has an equitable interest which abides with him
at his domicile and is there taxable.

Affirming 120 N. E. 162.

Case No. 93
28 Opinion Attorney General, 211,

Rendered by George W. Wickersham, March 9, 1920. Act of 1909.

(1) Foreign corporations engaged in transporting goods
on the high seas to and from the United States, maintain-
ing docks and other facilities in the United States are doing
business therein and receive income from sources within
the United States.

(2) The tax is not invalid as being on exports, even
though it is measured by income received in part from
exports.

SOURCES OF INCOME 79

Case No. 94
30 Opinion Attorney General, 230 and 273,

Rendered by J. C. McReynolds, October 23, 1913. Act of 1913.

(1) An act taxing income from property within the
United States owned by persons residing elsewhere does
not tax income from bonds owned by a nonresident alien,
irrespective of where the bonds themselves are in fact kept
and where interest payments are made.

(2) This is true likewise as to income from shares of
stock of companies organized in the United States, owned
by aliens residing without the United States.

Affirmed 30 Opinion Attorney General, 435.

Case No. 95
Opinion Attorney General, T. D. 3111,

Rendered by A. Mitchell Palmer, 1920. Act of 1918.

(1) There is no income from sources within the United
States from goods manufactured there unless there is, in
the language of section 233 (b), both "manufacture and
disposition of goods within the United States." The
Act taxes only income that accrues within the United
States.

(2) The mere buying of goods within the United States,
with capital furnished from abroad, to be sold abroad, is
not a trade or business exercised in the United States so as
to subject the purchaser of the goods to income tax. A
merchant exercises his trade where he has his principal
place of business, viz., where his profits come home to
him.

(3) If income be taxed, the recipient thereof must have
a domicile within the jurisdiction imposing the tax, or the
property or business out of which the income issues must

80 AMERICAN INCOME TAX CASES

be situate within such jurisdiction so that the income may
be said to have a situs therein.

(4) Where a corporation purchases goods abroad and
sells them within the United States, the profits accruing
from such transactions are profits derived from business
carried on within the United States and the gross income
from such business is income from sources within the
United States.

(5) In the case of a partnership organized abroad one of
whose members is a resident citizen of the United States
and whose business consists in selling abroad goods con-
signed to it from various parts of the world including the
United States, upon commission, title to the goods never
vesting in the firm but passing directly from the consignors
to the purchasers, the business of the United States mem-
ber consisting of soliciting consignments of goods, dis-
bursing proceeds of sales made abroad in payment to
consignors in the United States, attending to the shipment
of goods, and making advances to consignors on security
of bills of lading and express receipts, the funds for the use
of the branch office in the United Stages being obtained by
selling drafts on a foreign city, only the income of the
partner resident within the United States is income from
sources within the United States and subject to income
tax.

(6) A foreign corporation, having its home office abroad,
which operates a fine of steamships between the United
States and foreign ports, consigns its steamships to
an American firm, which handles them as agents and
brokers, seeing to the entry and clearance of each steamer,
the discharge and loading of cargo and supplies, collecting
such part of the freight as is prepayable in this country,
deducting the amount of its disbursements and charges
and remitting the balance to the foreign corporation,

SOURCES OF INCOME 81

derives income from sources within the United States to
the extent that it derives income from traffic originating
within the United States.

Case No. 96

People of New York ex rel. Alpha Portland Cement Co. v.

Knapp,

64 N. Y. L. J. 1043 (1920). State Acts of 1917 and 1918.

(1) The New York Corporation Tax Acts although
stated to impose excise taxes are in truth income tax acts,
and the state is without power unreasonably to allocate for
the purposes of the act income from within and without
the state.

(2) Thus an allocation based on location within and
without the state of corporate assets, which disregards
intangible property, although the income therefrom is
taxed, is invalid, as is also a similar method of allocation
which arbitrarily disregards corporate stock owned in an
amount greater than 10 per cent, of other assets.

Case No. 97

State ex rel. Manitowoc Gas Company v. Tax Commis-
sion,

162 N. W. 848 (Wise.) 1916. State Act of 1911.

Income from bonds, secured by a lien on property within
the state, held by nonresidents, is not " such income as is
derived from sources within the state or within its jurisdic-
tion," and is not taxable as income to the bondholders,
since the state is without jurisdiction. The property is
the bonds, and the situs thereof is the domicile of the
creditor.

82 AMERICAN INCOME TAX CASES

Case No. 98
State ex rel. Mariner v. Hampel,

178 N. W. 244 (Wise.) 1920. State Act of 1919.

Resident beneficiaries of a resident trust are not liable
for tax on income received from trustees of property
located without the state (which income is, therefore,
exempt from taxation in the hands of such trustees) merely
because the trustees pay administrative charges, expenses,
et cetera, and distributed the remainder of the income to
the beneficiaries within the state, since such activities do
not amount to carrying on business within the state of
Wisconsin and the beneficiaries are not therefore the
recipients of income from a business conducted within
the state.

Case No. 99
Underwood Typewriter Company v. Chamberlain,

108 Atl. 154 (Conn.) 1919. State Act of 1915.

(1) An excise tax levied on all corporations measured by
net income as computed under the federal act is not in-
valid as a tax on interstate commerce, though the corpora-
tion may have income from such sources.

(2) Allocation based on a proportion determined by the
ratio of tangible property within the state to all tangible
property owned is reasonable, since the tax levied is no
greater than the amount which might have been levied
directly on the property within the state.

(3) The use of the federal computation is not invalid as
a delegation of legislative authority.

Dissenting opinion.

EXEMPTION OP PEBSONS AND INCOMES 83

Case No. 100
Village of Westby v. Bekkedal,

178 N. W. 451 (Wise.) 1920. State Act of 1919.

Income derived from purchases in Wisconsin and sales
in New York is, as to persons residing in Wisconsin making
the purchases there and shipping the goods to New York,
income entirely "derived from property located or business
transacted within the state" and not from interstate
commerce, and is taxable; as to the New York partners
only so much of the income as is derived from sources in
Wisconsin is taxable.

Case No. 101
Arpin v. Eberhardt,

147 N. W. 1016 (Wise.) 1914. State Act of 1911.

(1) A statute imposing a tax on income "received by
every person residing within the state, and by every non-
resident of the state upon such income as is derived from
sources within the state or within its jurisdiction (and
upon) so much of the income of any person residing within
the state as is derived from rentals, stocks, bonds . . .
whether such income is derived from sources within or
without the state" does not reach income received by a
resident from profits earned by a partnership doing busi-
ness without the state, since such a construction would
render ineffective the provision relating to income from
stocks and bonds.

(2) An action brought by a taxpayer to test the consti-
tutionality of a taxing statute may be cited as authority
only for such considerations as go to the act as a whole, and
language used as to the meaning of individual points

84 AMERICAN INCOME TAX CASES

is not controlling, referring to language used in 134 N. W.
673.

Case No. 102
Commercial Trav. Life & A. Association v. Rodway,

236 Fed. 370 (D. C, N. D. Ohio) 1913. Act of 1909.

(1) Where a corporation is organized under a state
statute regulating mutual protective associations, and
operates as such, it cannot claim tax exemption as a
"fraternal beneficiary society," there being a separate
provision of the state laws regulating such organizations.
Fraternal beneficiary societies discussed.

(2) The absence of profit is not the criterion by which to
judge whether the corporation is exempt; it is the presence
or absence of a fraternal side and object.

(3) The words "operating under the lodge system"
apply to each of the several classifications in the expression
"fraternal beneficiary societies, orders or associations
operating under the lodge system."

Case No. 103
Equitable Trust Company v. Western Pacific Railway Co.,

236 Fed. 813 (D. C, N. D. Calif.) 1916. Act of 1913.

On the authority of Penn Steel Company v. New York
City R. Company, 198 Fed. 775, held, that a fund in the
hands of receivers, through whom the court took posses-
sion of corporate property, representing the net proceeds
from the operation of a railroad while in their hands, over
and above the expenses and authorized expenditures, is
not subject to income tax under the Act of 1913.

EXEMPTION OF PERSONS AND INCOMES 85

Case No. 104
First Trust and Savings Bank v. Smietanka,

(C. C. A., 7th Circ.) October, 1920. Act of 1913.

(1) The Act of 1913 taxes only the income of persons,
including individuals and corporations. It did not there-
fore reach income accruing to property held in trust for
distribution in the future to unascertained persons.

(2) This construction is confirmed by the fact that
legislation to accomplish such taxation was passed in 1916.

Case No. 105
Herold v. Parkview Building and Loan Association,

210 Fed. 577 (C. C. A., 3d Circ.) 1914. Act of 1909.

(1) The phrase "no part of the net earnings of which,"
etc., found in section 38 applies only to religious, chari-
table or educational associations.

(2) A building and loan association is operated for
the mutual benefit of its members, even though it issues
paid-up stock, the purchaser thereof being guaranteed
a fixed rate of interest payable out of profits, since "mu-
tual" means "substantially equal," and the benefit to
the stockholder from his guarantee is offset by the benefit
to the association from the fact that the stock is entirely
paid up, giving to it working capital.

Affirming 203 Fed. 876.

Case No. 106
In re Heller, Hirsch Company,

258 Fed. 208 (C. C. A., 2d Circ.) 1919. Act of 1916.

A trustee for a corporation in bankruptcy who com-
promises a claim against a debtor, amounting to $396,-

86 AMERICAN INCOME TAX CASES

973.44, for $119,275, is not required to report as taxable
income of the corporation the amount so gained, since
he was not "operating the property or business" of the
corporation when he so acted, and Congress intended only
to tax those trustees who actually continued defunct
corporations' businesses — not those who merely liquidate
and distribute the assets.

Case No. 107
Lathers v. Hamlin,

170 N. Y. S. 98 (1918). Act of 1913.

A receiver of rents and profits, appointed by a court,
who may therefore act only as the court instructs him,
is under no obligation to pay income tax with respect to
rents and profits received, since they are not the avails of
investments, trade, commerce, employment, occupation
or service, and are in no sense "income" so far as the
receiver is concerned.

Case No. 108
Lederer v. Stockton,

266 Fed. 676 (C. C. A., 3d Circ.) 1920. Acts of 1913 and 1916.

No income tax is collectible from income accruing to a
trust fund in the hands of a trustee charged with the duty
of paying from the income of $15,000 an annuity of $500
and accumulating the balance for payment to a corpora-
tion exempt from tax upon the death of the annuitant,
where as a mattter of fact the exempt corporation has use
and possession of the trust fund as result of a loan from
the trustee, and itself advances the money with which
to pay the annuitant, for the trustee in this case is the
mere agent of the exempt beneficiary, and no tax can
therefore attach with respect to the income accumulating,

EXEMPTION OF PERSONS AND INCOMES 87

the trustee and the exempt beneficiary being substantially
one.
Affirming 262 Fed. 173.

Case No. 109
Oahu R. & L. Company v. Pratt,

14 Haw. 126 (1902). Hawaiian Act of 1901.

(1) Inasmuch as a tax on income is in substance a tax
on the property from which it is derived, income which
springs from property itself tax exempt, is likewise exempt.

(2) An exemption by the legislature of property "fairly
necessary to the reasonable construction," etc., of a rail-
road does not exempt a state-paid subsidy from taxation
as income when received by a completed railroad con-
ducting operations at a profit and the amount of such
subsidy is taxable as income.

Case No. 110
28 Opinion Attorney General, 138,

Rendered by George W. Wickersham, July 13, 1910. Act of 1909.

Since the Act of 1909 provides that the tax therein
imposed shall be measured by income from all sources
except that certain specified deductions named may be
subtracted, and since there is no language of the Act which
would exempt from the tax interest received on United
States bonds, such interest must be included in gross in-
come, and may not be deducted from gross income when
determining net income by which the tax is measured.

88 AMERICAN INCOME TAX CASES

Case No. Ill
31 Opinion Attorney General, 125,

Rendered by T. W. Gregory, June 8, 1917. Act of 1916.

(1) Corporate stockholders receiving dividends paid
with nontaxable liberty bonds must include in the com-
putation of net income subject to income tax the value
of such bonds received as dividend payments, because the
tax is not upon any part of the income but upon it as a
whole and "cannot be evaded because the income or gain
happens to be liquidated by the delivery of a certain
number of . . . nontaxable securities."

(2) A corporation owning nontaxable bonds is not
exempt from excise taxes, franchise taxes and other cor-
poration taxes such for instance as the capital stock tax,
to the extent of such ownership.

Case No. 112
31 Opinion Attorney General, 176,

Rendered by T. W. Gregory, November 3, 1917. Act of 1916.

Credit unions organized under the laws of Massachusetts,
being in substance and in fact the same as "cooperative
banks . . . organized and operated for mutual purposes
and without profit," come within the provisions of the
fourth paragraph of Section II, and are exempt from
taxation.

Case No. 113
31 Opinion Attorney General, 403,

Rendered by A. Mitchell Palmer, March 26, 1919. Act of 1916.

An association known as "Houlton Grange" composed
of persons engaged in agriculture, which acts as the agent

EXEMPTION OF PERSONS AND INCOMES 89

of its members for the purchase of goods for resale to
them, is not exempt from income tax, because it does
not operate under the lodge system or provide for benefits
to its members and because it does not operate as sales
agent for the purpose of marketing the products of its
members.

Case No. 114
Pacific Building and Loan Association v. Hartson,

201 Fed. 1011 (D. C, W. D. Wash.) 1913. Act of 1909.

A building and loan association which loans to nonmem-
bers, issued preferred or guaranteed interest paying stock,
and authorizes the directors upon finding that the income
of the association cannot be loaned profitably to "cancel
any outstanding certificates of stock not borrowed upon,"
thereby authorizing the retirement of all stock in their
discretion is not "organized ... for the mutual benefit
of the members."

Case No. 115
Parkview Building and Loan Association v. Herold,

203 Fed. 876 (D. C, N. Y.) 1913. Act of 1909.

(1) A building and loan association is "organized and
operated exclusively for the mutual benefit" of its mem-
bers where each member is entitled to one and only one
vote irrespective of stock ownership, and where there is
mutuality with respect to the distribution of assets upon
dissolution even though the holders of one class of shares
pay the full amount at one time and the company guar-
antees them a certain per cent, return with no like guaranty
to other stockholders since "mutual" cannot always be
considered to be a synonym of "equal," and here the

90 AMEKICAN INCOME TAX CASES

advantage of a fixed rate of return is offset by the pay-
ment for the shares in full.

(2) Doubt must be resolved in favor of the tax-
payer.

Affirmed 210 Fed. 577.

Case No. 116
Pennsylvania Steel Company v. New York City Ry. Co.,

176 Fed. 471 (D. C, S. D. N. Y.) 1910. Act of 1909.

The Act of 1909 was not meant to reach insolvent cor-
porations with no net income, whose properties are ad-
ministered by a court.

Affirmed 231 U. S. 144.

Case No. 117

Pennsylvania Steel Company v. New York City Ry. Co. ;
Central Trust Company v. Third Avenue Ry. Co.,

193 Fed. 286 (D. C, S. D. N. Y.) 1912. Act of 1909.

It was not the intention of Congress to assert the excise
tax of 1909 against corporations whose assets were given
into the hands of receivers, acting under court authority,
for the purpose of marshalling and distributing them
to creditors.

Affirmed 198 Fed. 774 and 231 U. S. 144.

Case No. 118

t

Pennsylvania Steel Company v. New York City Ry. Co. ;
Central Trust Company v. Third Avenue Ry. Co.,

198 Fed. 774 (C. C. A., 2d Ore.) 1912. Act of 1909.

Returns of net income, or payment of tax measured
thereby, are not required from receivers of insolvent

EXEMPTION OF PERSONS AND INCOMES 91

corporations carrying on the business of the corporations,
for the following reasons: First, the act does not mention
receivers or make them liable to comply with the terms of
the act on behalf of the corporation the property of which
is in their possession; second, the tax is not meant to
reach businesses carried on other than by corporations;
third, the tax applies only to corporations which them-
selves carry on business; fourth, a corporation the func-
tions of which are carried on by a receiver is not doing
business.
Affirming 193 Fed. 286; affirmed 231 U. S. 144.

Case No. 119
Scott v. Western Pacific Company,

246 Fed. 645 (C. C. A., 9th Circ.) 1917. Act of 1913.

(1) Receivers being court officers it is proper for them to
request instructions whether to pay taxes.

(2) The omission of specific words imposing a tax on re-
ceivers of corporations with respect to the income of the
corporation for which they act must be taken to exempt
them from taxation entirely.

(3) This construction is confirmed by the specific
provision made in the Act of 1916 for such taxation.

Affirming 236 Fed. 813.

Case No. 120

State ex rel. Columbia Construction Company v. Tax
Commission,

165 N. W. 382 (Wise.) 1917. State Act of 1916.

(1) Where a statute excepts from income taxation
dividends received from stocks in any corporation the
income of which has already been "assessed," dividends

92 AMERICAN INCOME TAX CASES

from a corporation which was listed and exempted from
taxation are taxable.

(2) Where C receives dividends on stock held in corpo-
ration B, which was exempted from taxation because all of
its income was from dividends on stock held in corporation
A, which was itself subject to tax, no exemption attaches
to the dividends received by C under a statutory exemp-
tion excepting from tax "dividends received from stocks in
any corporation the income of which has already been
assessed."

Case No. 121
State ex rel. Moon v. Nygaard,

176 N. W. 810 (Wise.) 1920. State Act of 1917.

When a statute provides that a dividend means a dis-
tribution out of earnings, a distribution by A company to
B company, a stockholder holding company, which in turn
is distributed to C, an individual owning stock in B com-
pany, is not taxable to C, if the distribution made by A
company was out of capital.

Case No. 122
Stockton v. Lederer,

262 Fed. 173 (D. C, E. D. Penn.) 1919. Acts of 1913, 1916 and 1917.

Income of an estate devised to executors on trust to pay
certain annuities until death of beneficiaries and the
remainder to a named charity is not taxable in the hands
of the trustees under the Acts of 1913, 1916 and 1917, if
the sum paid to each beneficiary is less than the allowable
credit, because the income to the estate is really income to
those having the beneficial interest therein, none of whom
are taxable (the annuitants because the amounts are too
small; the charity because specifically exempted) and the

EXEMPTION OF PERSONS AND INCOMES 93

trustees are only the reservoir and conduit through which
the income reaches the beneficiaries.
Affirmed 266 Fed. 676.

Case No. 123
United States v. General Insp. and Loading Company,

192 Fed. 223 (D. C, N. J.) 1911. Act of 1909.

A corporation which did business during 1909 is liable
for payment of the Corporate Excise Tax, notwithstanding
that it has before the due date of the return secured a
certificate of dissolution.

Case No. 124

United States v. Whitridge;
United States v. Joline and Robertson,

231 U. S. 144 (1913). Act of 1909.

The corporation excise tax, not specifically dealing with
corporations whose businesses and properties are in the
hands of a receiver acting as a court officer, does not apply
to such corporations.

Affirming 176 Fed. 471, 193 Fed. 286 and 198 Fed.
774.

Case No. 125
Wilcox v. Middlesex Commissioners,

103 Mass. 644 (1870). State Act.

An income tax statute which exempts from tax income
received from property itself taxed, does not exempt a
merchant's income derived from his occupation as such,
even where his stock in trade has been assessed on assess-
ment day, for his income is not necessarily from his stock

94 AMERICAN INCOME TAX CASES

in trade, but is the result of many combined influences:
the use of capital invested, personal labor and services,
skill with which stock is laid in from time to time, or is
renewed, carefulness and good judgment as to credit and
the foresight and address with which preparation for
contingencies is made. In short, it is the creation of
capital industry and skill, and does not flow solely from
his stock in trade.

Case No. 126
Wilder v. Hawaiian Trust Company, Trustee,

20 Haw. 689 (1911). Hawaiian Act of 1905.

(1) An income tax statute taxing "income over and
above fifteen hundred dollars, derived by every person
residing either within or without the Territory from all
property owned and every business, trade, profession,
employment or vocation carried on in the Territory,"
does not operate to require a return and tax from a cor-
poration acting in a fiduciary capacity with reference to
income received by it on trust for living persons and paid
over to them, after deducting expenses, each year, since
such income is "derived" by the beneficiaries who ac-
tually receive it and it is taxable to them.

(2) The excess of such income received over the amount
necessary to meet expenses and to pay annuities, which is
under the terms of the trust accumulated for the benefit of
unknown persons is not taxable, since it is not "derived"
by any person, that term referring to the receipt of income
beneficially for the recipient's own use.

DEDUCTIONS, IN GENERAL 95

Case No. 127
Black v. Bolen,

268 Fed. 427 (D. C, W. D. Okla.) 1920. Act of 1913.

(1) If a claim for abatement of additional taxes has been
rejected by the Commissioner, it is not a necessary condi-
tion precedent to suit by the taxpayer that he file claim
for refund thereof after payment, particularly where he has
been advised by the Commissioner that "it is unnecessary
that a refund claim be filed before suit is instituted."

(2) A taxpayer engaged generally in the oil business,
buying, selling and developing oil leases, and who during
the taxable year bought and sold stocks on the New York
curb in amount of $100,000, may deduct from gross
income as a loss incurred in business the amount of moneys
representing profits from stock speculation embezzled by
his broker, for a man may have more than one trade or
business, and since the taxpayer did not profit by reason of
his speculation, the government should not do so at
his expense.

Case No. 128

Bryce v. Keith,

257 Fed. 133 (D. C, E. D. N. Y.) 1919. Act of 1913.

Loss of the entire value of corporate stock acquired by
numerous transfers of property to a corporation, the
transactions being complicated in character and involving
large sums of money, from which it reasonably can be
assumed they required much time and attention, is a loss
"incurred in trade," and is therefore deductible from gross
income when computing net income subject to tax.

96 AMERICAN INCOME TAX CASES

Case No. 129
Grand Rapids & I. Ry. v. Doyle,

246 Fed. 792 (D. C, W. D. Mich.) 1915. Act of 1909.

(1) A railroad corporation which replaces old rails and
equipment with new and better rails and equipment may
deduct from gross income the replacement value of the
equipment changed, but capital additions may not be
deducted. Operating expenses of a railroad means the
payment for labor and materials which go into the actual
operating of the property. "Maintenance" means the
upkeep or preserving of the condition of the property,
and excludes additions.

(2) A treasury decision is entitled to some considera-
tion, but not to great weight.

Affirmed 256 Fed. 989.

Case No. 130
Grant v. Hartford and New Haven Railway Company,

93 U. S. 226 (1876). Act of 1864.

An act imposing an income tax on all profits, including
those used in construction, does not reach the entire
amount of an investment in a new bridge built to replace
an old one, but only so much of such investment as ex-
ceeds the value of the old bridge replaced when it was
in good repair.

Affirming Fed. Cas. 6159.

DEDUCTIONS, IN GENERAL 97

Case No. 131
Gulf and Interstate Ry. Company v. Walker,

D. C, W. D. Tex., May 13, 1920. Act of 1909.

(1) Unpaid overdue interest is not to be included in
income.

(2) An advance by a parent corporation to a subsidiary
to meet losses incurred by the latter is deductible from
gross income in determining net income, when the facts
show that the facilities provided the parent company by
the subsidiary company are so vital to the former's busi-
ness that its maintenance is a legitimate and necessary
item of expense of the parent company.

Case No. 132
Hartford and New Haven Ry. Company v. Grant,

Fed. Cas. 6159 (C. C. Conn.) 1872. Act of 1864.

(1) Whatever sum is necessary to replace an old and
worn out bridge by a new one of the same materials and
dimensions can in no sense be deemed to be an invest-
ment of profits.

(2) The excess of the entire amount expended over the
cost of replacing the structure removed with another of
like kind and dimension is an investment of profits.

(3) But if no allowance has been made for depreciation,
and other expenses, and if such an allowance is properly no
greater than the entire expense of the bridge, then the
excess cost of the new bridge over the replacement cost of
the old may be offset against such allowance.

Affirmed 93 U. S. 225.

98 AMERICAN INCOME TAX CASES

Case No. 133
In re Hawaiian Com. and Sugar Company,

14 Haw. 687 (1903) Hawaiian Act of 1901.

A corporation which builds a new and larger plant on a
different site and abandons the old plant may not when
computing net income deduct as an expense "actually
incurred in carrying on business" the value of the old
plant abandoned, for a provision in the Act that "no
deduction shall be made for new buildings, permanent
improvements or betterments made to increase the value
of any property or estate" does not necessarily mean that
every such expenditure which does not increase the value
of property may be deducted. A deduction, up to the
value of the old plant, might be allowed as an expense if it
were necessary to replace or rebuild the old plant, but
here the old plant remained in as good condition as before,
although unused.

Case No. 134
In re Hazard's Estate,

177 N. Y. S. 369 (1919). Act of 1917.

The federal income tax imposed upon income of a
decedent received between the first of the year and the
date of his death is not so fixed at the time of his death
as to be an allowable deduction when computing net
estate subject to New York Transfer Tax, since it might
at any time within five years be recomputed and re-
assessed by the Commissioner.

DEDUCTIONS, IN GENERAL 99

Case No. 135
In re Income Tax Appeal Cases,

18 Haw. 596 (1908). Act of 1905.

(1) Where a statute specifically forbids a deduction
from gross income of amounts expended for new build-
ings, amounts so expended may not be deducted even
where it is shown that the new buildings do not better
the property but are made necessary by the introduction
of European labor to replace Asiatic.

(2) The cost of new machinery acquired to replace old
machinery may be deducted where the latter is so worn
as to become inefficient, even though the taxpayer re-
tains it for possible use in emergencies.

(3) So much of the cost of a new bridge built of con-
crete and steel to replace one of wood which is equivalent
to the value of the old bridge, may be deducted, but the
excess represents an investment of capital.

(4) Where a sugar cane plantation was forced to sub-
stitute new varieties of cane to replace old varieties on
account of the deterioration of the latter, and the sub-
stitution required new machinery to handle the new
varieties, the output not being increased and the planta-
tion remaining at the same state of efficiency, the value
of the new machinery may not be deducted except so
far as it actually replaced the old, when the replacement
value of that discarded may be deducted.

(5) An amount expended in 1906 for clearing prop-
erty from which according to ordinary experience a crop
would be harvested in 1908 is an amount expended in the
production of movable property to be sold and may under
the statute be deducted when so sold, but not otherwise
as a current expense.

100 AMERICAN INCOME TAX CASES

Case No. 136
In re Laupahoehoe Sugar Company, et al.,

18 Haw. 206 (1906). Hawaiian Act of 1905.

Where a statutory amendment of an income tax law
requires the inclusion in gross income of the amount of
sales of movable property "less the amount expended in
the purchase or production of the same," and also au-
thorizes the deduction from gross income of necessary
expenses of a trade or business, the latter provision being
continued from the prior act, a taxpayer need include in
income from sales of movable property only the amount
specified in the provision quoted, even though part of
the expenses incurred in production of the property sold
have already been deducted from gross income when
computing tax due for prior years.

Case No. 137
In re Smith,

16 Haw. 796 (1905). Hawaiian Act of 1901.

A surveyor cannot deduct from gross income when
computing net income for the purposes of income taxa-
tion an amount representing expenditures for neces-
sary instruments, books, etc., used in carrying on bis
profession.

Case No. 138
In re Wilder S. S. Company,

16 Haw. 667 (1905). Hawaiian Act of 1901.

No deductible loss is realized, under an income tax
statute permitting a deduction from gross income when
computing net income, of losses sustained in trade, by

DEDUCTIONS, IN GENERAL 1D1>*~— -<<

^ Jaw \S*.

reason of the breaking up and scrapping of a vessel
twenty-five years old, which originally cost $18,500, and
the scrap value of which was less than $1,000, as a result
of requirements of federal authorities that expensive
repairs be made before the vessel continue in trade, for
although certain losses of capital are deductible "this is
not a loss which for the purpose of taxation is to be
measured by the estimated earnings which the steamer
might have made if it could have continued running; nor
was it a loss to be measured by the cost of replacing it
with a new steamer."

Case No. 139
Jacobs and Davies v. Anderson,

228 Fed. 605 (C. C. A., 2d Circ.) 1915. Act of 1909.

Where a corporation agreed with two of its stockholders
to pay them $6,000 per year for their services, plus a share
of the profits to be determined by subtracting from gross
income all expenses, including the salaries, and subtract-
ing from the balance 10 per cent, to be paid as dividends,
the balance being payable to the two stockholders as ad-
ditional compensation, such balance is profit of the cor-
poration and is subject to tax, as it does not appear that
such balance was paid for services actually rendered but
does appear to be based on stockholdings.

Case No. 140
Laemmle v. Eisner,

(D. Cm S. D. N. Y.) Opinion of Judge Sheppard, 1920. Act of 1913.

Attorney's fees paid in litigation for the mastery of
corporate stock resulting in practically the ownership or
control thereof and the consequent management of the

102 AMERICAN INCOME TAX CASES

company under the circumstances disclosed (but not in
the opinion) constitute a capital investment and not a
"necessary expense actually paid in carrying on the busi-
ness," deductible from income derived from such busi-
ness, when computing net income subject to tax.

Case No. 141
Mente v. Eisner,

266 Fed. 161 (C. C. A., 2d Circ.) 1920. Act of 1913.

(1) A member of a firm in the business of manufactur-
ing bags and bagging is not entitled to deduct from gross
income losses incurred in dealing independently in cotton
futures, where he did not give enough time and attention
to such dealing as to constitute it a separate trade or busi-
ness, this construction of "losses . . . incurred in trade,"
adopted by the Treasury Department, being approved.
While it may be inconsistent to include profits from such
transactions, but to disallow losses, this is no objection,
because "tax laws are not required to be perfect, or even
consistent."

(2) Dissenting opinion by Judge Manton, on the ground
that the construction is more narrow than the authorities
warrant.

Case No. 142
31 Opinion Attorney General, 617,

Rendered by A. Mitchell Palmer, May 19, 1919. Act of 1918.

Corporations are not entitled to deduct from their
gross incomes for the purposes of the income tax the
amount of contributions made to religious, charitable,
scientific or educational corporations or associations,
including associations such as the Red Cross and kindred
organizations.

DEDUCTIONS, IN GENERAL 103

Case No. 143
Opinion of the Attorney General,

Rendered by A. Mitchell Palmer (Op. Ag., 1, Income Tax Rulings) 1920.
Act of 1918.

The amount of the federal estate tax is not deductible
from gross income of the estate when computing its tax-
able net income, since the estate tax is a charge upon the
passing of the estate and never becomes a part of the
estate, but is held in trust for the United States by the
executor.

Case No. 144
Prentiss v. Eisner,

260 Fed. 589 (D. C, S. D. N. Y.) 1919. Act of 1913.

The transfer tax upon a legacy or distributive share of
an estate imposed by the laws of New York is not an
imposition upon either the property passing or the right
to receive it, but a deduction from the estate of the de-
cedent, and may not be deducted from the gross income
of the legatee or distributee when computing net income
subject to tax.

Affirmed 267 Fed. 16.

Case No. 145
Prentiss v. Eisner,

287 Fed. 16 (C. C. A., 2d Circ.) 1920. Act of 1913.

The New York tax on transfers of property by deced-
ents, under which the amount of the tax is deducted from
the various legacies although constituting a lien payable
by the executor or administrator is a tax on the right to

104 AMERICAN INCOME TAX CASES

transfer property upon death and is not a tax on the
legatee; the latter may not therefore when computing
net income subject to income tax deduct from gross in-
come the amount of the transfer tax subtracted from her
legacy.
Affirming 260 Fed. 589.

Case No. 146
Southern Pacific Ry. Company v. Meunter,

260 Fed. 837 (C. C. A., 9th Circ.) 1919. Act of 1909.

A corporation computing annual income under the
Act of 1909, may not deduct as a loss actually sustained
during the year or as interest paid an aliquot part of
total discount at which an issue of bonds was previously
sold, although a sum equal to such part is set aside on its
books as properly assignable to that year.

Case No. 147

Traylor Engineering and Manufacturing Company v.

Lederer,
266 Fed. 683 (D. C, E. D. Pa.) 1920. Act of 1916.

A corporation munitions manufacturer which has con-
tracted with two individuals that upon their contribution
to the expense of sending an agent abroad and lending
their personal influence to the success of the contemplated
project it would share with them the profits from the
venture on an agreed basis, may not deduct from gross
income when ascertaining net income subject to tax the
shares of the profits paid to the individuals as a result of
such contract, but it is taxable on the whole of such
profits, where the share of profits allowable to the in-
dividuals is in ratio of $1,000 to each $1 invested by them,

DEDUCTIONS, IN GENERAL 105

since the amounts paid them bear no normal relation to
the value of the services, rendered and the loan made.

Case No. 148
United States v. JEtaa Life Insurance Company,

260 Fed. 333 (D. C, Conn.) 1919. Act of 1909.

A corporation owning stock of another corporation
which did not include as income the amount of taxes paid
on its behalf by the corporation whose stock is owned,
may not deduct from gross income such amounts as
"taxes paid" since allowable deductions on account of
taxes are clearly defined as "all sums paid by it," not,
"all sums paid by it or on its behalf."

Case No. 149
United States v. Mayer,

26 Fed. Cas. 15753 (D. C, D. Ore.) 1865. Act of 1864.

Under the Act of 1864, a merchant may deduct from
gross income, as a business expense the amount of debts
which he honestly believed were bad at the end of the
year, and the action he took with reference to. them at
that time is better evidence as to his good faith than are
claims and opinions formed after a controversy has
arisen.

Case No. 150
United States v. Philadelphia Knitting Mills Company,

(D. C, E. D. Pa.) 1920. Act of 1909.

The amount of salary paid an officer of a corporation,
who is also a stockholder, which the corporation may
deduct from gross income as an ordinary and necessary
expense is to be determined by answer to the question of

106 AMERICAN INCOME TAX CASES

how much of what is paid, is paid by way of distribution
of profits — the amount paid as distribution of profits not
being deductible 1 — and such question can only be an-
swered by findings based on evidence, and if there is no
evidence all of such payments are deductible; the ques-
tion is not to be determined by submitting to a jury the
question what is a reasonable salary and assuming that
all beyond this sum is a distribution of profits, not be-
cause Congress could not limit the deductible salaries,
but because it has not done so, and there is practically no
guide to determine what should be paid or measure of
payment other than the judgment of those whose money
is being paid.

Case No. 161
Altheimer & Rawlins Inv. Company v. Allen,

246 Fed. 270 (D. C, E. D., Mo.) 1917. Act of 1909.

The restriction on the deduction of interest contained
in the Act of 1909 must be literally read; thus, an invest-
ment company dealing largely in the purchase and sale
of securities may not deduct interest on an amount of
capital greater than its paid-up stock, even where its
indebtedness is a normal incident to its business and is
necessitated by the purchase from it by customers of
securities on credit.

Affirmed 248 Fed. 688; certiorari denied 248 U. S.
578.

Case No. 152
Altheimer & Rawlins Inv. Company v. Allen,

248 Fed. 688 (C. C. A., 8th Circ.) 1918. Act of 1909.

An investment company engaged in buying and sel-
ling securities may not deduct interest on indebtedness

DEDUCTION, BESTRICTION ON 107

greater in amount than its capital stock, even where pur-
chases by customers on credit necessitate borrowing large
amounts of capital, since the company is not an agent of
the purchaser in making such loans, but borrows on its
own account and makes a profit on the transactions in
that the purchaser of securities is charged a rate of in-
terest greater than the rate at which the company bor-
rows.
Affirming 246 Fed. 270; certiorari denied 248 U. S. 578.

Case No. 153
Anderson v. Forty-two Broadway,

213 Fed. 777 (C. C. A., 2d Circ.) 1914. Act of 1909.

(1) A corporation with a paid in capital of $600 may
deduct as an expense necessary to the continued use of
its property, the entire amount of interest paid on its
bonded indebtedness secured by said property, notwith-
standing the limitation in the Act that interest on a prin-
cipal amount not greater than its paid-up capital stock
may be deducted, since the indebtedness meant is that
"which is not an ordinary expense of maintenance nor a
charge, payment of which is a condition of the continued
use or possession of the property."

(2) A corporation may be subject to the tax though in
point of fact there was no net income at all; liability to
the tax depends upon whether there is net income ac-
cording to the terms of the Act.

Affirming 209 Fed. 991; reversed 239 U. S. 69.

108 AMERICAN INCOME TAX CASES

Case No. 164
Anderson v. Forty-two Broadway,

239 U. S. 69 (1915). Act of 1909.

The Act of 1909 being an excise tax, it is unnecessary
that only topue income be used as a basis for taxation; it
was not therefore unreasonable for Congress to forbid
the reckoning of all interest paid when computing the
tax, and the line drawn at an amount not in excess of that
paid on a principal no greater than the capital stock was
not arbitrary. A specific limitation as to the deduction
of interest precludes deduction thereof as a business
expense or otherwise.

Reversing 209 Fed. 991 and 213 Fed. 777.

Case No. 155
Associated Pipe Line Company v. United States,

268 Fed. 800 (C. C. A., 9th Circ.) 1919. Act of 1909.

(1) A pipe line corporation with an ordinary charter,
50 per cent, of whose stock was held by two producing
corporations, which does business in the ordinary way, is a
corporation organized for profit, not a mere "convenient
agent" of the two stockholding corporations, and is
not exempt.

(2) Since stock was not actually issued until 1911,
before that time there being no outstanding stock but only
large credit balances representing cash advances made by
the two producing corporations, there was during the tax-
able year no paid-up capital stock and therefore no inter-
est was deductible.

(3) A statement made by a corporation's auditor
to an internal revenue agent that the corporation had

DEDUCTION, RESTRICTION ON 109

no paid-up capital stock is admissible as against the
corporation.

Case No. 156
Boston and M. R. Company v. United States,

265 Fed. 678 (D. C, Mass.) 1920. Act of 1909.

The provision that deductions from gross income on
account of interest paid shall be limited to interest paid on
indebtedness in amount/ 'not exceeding the paid-up capi-
tal stock . . .outstanding at the close of the year,"
means that a, deduction on account of interest paid is
limited to interest paid on indebtedness equivalent to the
par value of stock outstanding, but not exceeding that,
and it is immaterial that a state statute enacted to ac-
complish a different purpose otherwise defines "paid-up
capital stock.'

Case No. 157
Forty-two Broadway v. Anderson,

209 Fed. 991 (D. C, S. D. N. Y.) 1913. Act of 1909.

A corporation with a capital stock of $600 and a bonded
indebtedness of $5,000,000 is allowed to deduct from gross
income the entire= amount of its interest paid, where its
business is the operation and rental of real estate since the
general purpose of the act is to tax net income, and the
corporation in fact had no net income. Although deduc-
tion of interest beyond that paid on a principal equivalent
to capital stock is forbidden by the act, in this case the
excess of interest may be deducted as a payment "such as
rentals or franchise payments required to^ be made as a
condition to the continued use or possession of property,"

110 AMERICAN INCOME TAX CASES

for if the interest had not been paid, the taxpayer would
have been evicted from its property.
Affirmed 213 Fed. 777; reversed 239 U. S. 69.

Case No. 158
Middlesex Banking Company v. Eaton,

221 Fed. 86 (D. C, Conn.) 1915. Act of 1909.

A corporation which loans money on farm mortgages
and in turn borrows funds from the public by issuing
so-called "bonds" and "real estate securities," making
profit through the difference in rates at which such funds
are loaned and borrowed, is not entitled to a deduction
equal to the interest paid on a principal amount of in-
debtedness greater than its paid-up capital stock since the
corporation is not a banking corporation, and the deduc-
tion may not be taken by way of business expense, because
it is interest, the deduction of which is specifically regu-
lated by the statute.

Affirmed 233 Fed. 87.

Case No. 169
Middlesex Banking Company v. Eaton,

233 Fed. 87 (C. C. A., 2d Circ.) 1916. Act of 1909.

A corporation whose business it is to loan money, taking
as security the borrower's mortgage, and which in turn
sells its own obligations bearing a low rate of interest, may
not deduct under the Act of 1909 the interest paid thereon
in excess of interest on indebtedness greater than paid-
up capital stock, since that interest is not interest paid to
depositors by a banking corporation and the statute for-
bids its deduction except in that case.

Affirming 221 Fed. 86.

DEDUCTION, BESTKICTION ON 111

Case No. 160
28 Opinion Attorney General, 198,

Rendered by George W. Wickersham, February 21, 1910. Act of 1909.

A corporation may not deduct interest on an indebted-
ness of its own greater than its paid-up capital stock,
whether or not payment of the excess interest is a payment
necessary to continued occupation of its property, except
that interest paid on indebtedness against the property
occupied, but not "assumed" by the occupant, may be
deducted without reference to the limitation, since such
interest is not interest on "its" indebtedness.

Case No. 161
Stern Milling Company v. Wisconsin Tax Commission,

176 N. W. 931 (Wise.) 1920. State Act of 1917.

(1) The provisions of a statute taxing net income
which allow the deduction from gross income when
computing income of "sums paid ... for taxes im-
posed by any state ... or any territory or possession
of the United States upon the source from which the
income taxed is derived" and "ordinary and necessary
expenses" do not authorize the deduction of federal
income taxes.

(2) A tax upon income is not a tax upon property from
which it is derived, under the Wisconsin statute.

(3) A tax is the price which every citizen must pay for
the privileges and protection of government.

(4) An express allowance of deduction for taxes imposed
excludes the allowance of any taxes not enumerated, on
the ground that such taxes are an ordinary and necessary
expense.

(5) Subsequent enactment by legislature, allowing the

112 AMERICAN INCOME TAX CASES

deduction claimed, evidences that it was not theretofore
allowable.

Case No. 162
United States v. New York and H. R. Company,

265 Fed. 331 (D. C. Conn.) 1919. Act of 1909.

The provision that deductions from gross income on
account of interest paid shall be limited to interest paid on
indebtedness in amount "not exceeding the paid-up
capital stock . . . outstanding at the close of the year,"
means that a deduction on account of interest paid may be
made only of interest which was paid on indebtedness in
amount not exceeding the par value of shares outstanding
at the end of the year plus the amount received for any
part-paid stock, and no premium paid in for outstanding
stock may be included.

Case No. 163
Eliot National Bank v. Gill,

210 Fed. 933 (D. C. Mass.; 1913. Act of 1909.

(1) Taxes assessed against bank shares and required to
be paid by the bank with a right of recoupment against
the shareholder by the bank, the law giving credit to
the tax districts of the respective shareholders for
such taxes paid, are not taxes paid by the corporation
within the meaning of the deduction clause, since that
clause contemplates only taxes imposed on the corpora-
tion itself.

(2) The Commissioner may assess additional taxes in
any case where the return was incorrect, provided only the
error was discovered within three years from the date the
return was due, as "false and fraudulent" as used in the

DEDUCTION, BANK SHARE TAXES 113

third subdivision of Section 38 does not mean with such
intent except where so specified.

"'(3) The three-year period mentioned is computed by
excluding the first day and including the last day.
Affirmed 218 Fed. 600.

Case No. 164
Eliot National Bank v. Gill,

218 Fed. 600 (C. C. A., 1st Circ.) 1914. Act of 1909.

(1) A tax payable upon shares. of bank stock assessed to
the owner thereof, the statute providing that the latter's
home tax district should receive credit for the amount of
the tax, is a tax on the stockholder and may not be de-
ducted by the bank, even where the bank is made liable
for the collection of and pays the tax.

(2), A provision tliat in the case of false or fraudulent
returns the Commissioner shall have power "upon the
discovery thereof at any time within three years after said
return is due" to make additional assessment, does not
require that the falsity which the Commissioner is thus
authorized to correct be fraudulent. It is sufficient
that the discovery of the falsity be made within three
years; the assessment required thereby may be made
thereafter.

Affirming 210 Fed. 933.

Case No. 165
First National Bank of Jackson v. McNeel,

238 Fed. 659 (C. C. A., 5th Circ.) 1917. Act of 1909.

A state statute requiring a bank to make return of its
capital in order to determine a valuation basis for the
imposition of taxes on its shares "to the holder or of the

114 AMERICAN INCOME TAX CASES

capital to the owner thereof," and further requiring pay-
ment by the bank, is a tax on the shareholders, even
though no provision is expressly made giving the bank the
right to recover from its shareholders, since this does not
show the right does not exist, state (Miss.) courts having
held the tax to be the shareholder's.

Case No. 166
National Bank of Commerce v. Allen,

211 Fed. 743 (D. C, E. D. Mo.; 1914. Act of 1909.

Only taxes imposed upon a taxpayer corporation itself
may be deducted from gross income by such corporation
when computing net income; therefore, where a state
imposes a tax upon bank shares, requiring as a means of
collection that the bank pay the tax and recoup itself
against the shareholders, no deduction is allowable to
banks on account of such taxes.

Affirmed 223 Fed. 472.

Case No. 167
National Bank of Commerce v. Allen,

223 Fed. 472 (C. C. A., 8th Circ.) 1916. Act of 1909.

(1) A tax levied by a state on the shares of stock of
national banks and requiring the president or other officer
to pay the tax and be reimbursed from dividends on the
shares is a tax on the shareholders and may not be de-
ducted as a tax by the bank.

(2) Since deductions on account of taxes paid are
specifically provided for in the law, no taxes may be de-
ducted as business expenses.

(3) "False" as used in subdivision 5 means "untrue"

DEDUCTION, BANK SHARE TAXES 115

or "incorrect," as opposed to fraudulently or intentionally
false.
Affirming 211 Fed. 743.

Case No. 168

Northern Trust Company v. McCoach;
Pennsylvania, etc., Company v. McCoach;
Philadelphia Trust Company v. McCoach;
Fidelity Trust Company v. McCoach,

216 Fed. 991 (D. C, E. D. Pa.) 1914. Act of 1909.

(1) A state tax imposed on the shares of national bank
stock owned by the state's citizens is not a tax imposed
on the bank and the amount thereof is not therefore de-
ductible by the bank from gross income as a tax, even
though under the state law the banking corporation may,
and actually does, pay the tax for its stockholders.

(2) Tax laws should be given the same construction
by all courts throughout the territorial limits within which
the tax is levied.

Case No. 169
United States v. Guaranty Trust and Savings Bank,

253 Fed. 291 (D. C, S. D. Fla.) 1918. Act of 1909.

A banking corporation organized under the laws of
Florida may deduct, when computing net income under
the Act of 1909, taxes paid by it on its stock under a
statute making the stockholder liable therefor, if the tax
is not paid by the corporation whose stock is owned, since
it was the intention of the legislature to make the bank
return its stock for taxation, and the primary obligation
to pay is on the bank.

116 AMERICAN INCOME TAX CASES

Case No. 170

Hawaiian Commercial and Sugar Company v. Tax

Assessor,

14 Haw. 601 (1903). Hawaiian Act of 1901.

A corporation which builds in a different location on
its property another and different mill and railroad de-
signed to take the place of. the mill and railroad already
existing, hut which have become outgrown, eannot de-
duct from gross income whqn computing net income the
value of the old mill and railroad on the theory that the
lbs& was a loss "actually sustained during the year in-
curred in trade" or was "otherwise incurred," for the
corporation still has what it had before.

. Case No. 171 >,,:

In re First American Savings and Trust Company, et al.,

15 Haw. 502 (1904). Hawaiian Act of 1904.

Under a provision of an income tax law which allows
as a deduction from gross income to determine net income
"all losses actually sustained during the year incurred
in trade . . . or losses otherwise actually incurred,"
losses of capital used in business may be deducted if
they occur during the tax year, as for example bank loans
lost during the year though made prior thereto, notes
given in payment for merchandise but which become
valueless during the year, etc., and more or less latitude
should be allowed as to when debts have become worth-
less.

DEPRECIATION 117

Case No. 172
In re H. Hackfeld and Company, Ltd.,

16 Haw. 659 (1905). Hawaiian Act of 1901.

Where a taxpayer owns all of the stock of a corporation
which is indebted to him in large amount, writes off to
profit arid loss a part of the debt owing, and thereafter
continues to make' advances to the corporation, the
amount so written off cannot be deducted from gross 1 in-
come as aloss sustained, since "the estimate of the loss did
not become an actual loss by the mere act of writing it
off to profit and loss." > !

Case No. 173
In re Pacific Guano and F. Company,

16 Haw. 652 (1905). Hawaiian Act of 1901.

A corporation which purchased property estimated
to be worth $85, 000 prior to 1896 did not suffer a loss
in 1903 by the discovery in that year that the prop-
erty was when purchased worth only $30,000, for the
loss occurred when the purchase money was paid, and is
not to be taken into account when computing net income
for 1903.

Case No. 174
Cohen v. Lowe,

234 Fed. 474 (D. C, S. D. N. Y.) 1916. Act of 1913.

(1) A reasonable allowance for exhaustion, wear and
tear, excludes an allowance fbr loss in value due to change
in neighborhood of an apartment building. z The allowance
authorized is to be based on the life of the building, i. e. ,
the time during which it could be used for the purposes

118 AMERICAN INCOME TAX CASES

for which it was erected, and is to be determined by a
fraction having one for its numerator and the ascertained
life of the building for its denominator.

(2) "Where the profits of a partnership were ascertained
on the basis of a fiscal year having its beginning before the
effective date of the law, the burden is on the taxpayer
to show what part of the earnings were accumulated be-
fore that date. In the absence of such showing the entire
amount received will be deemed taxable income, even
though the taxpayer cannot as a practical matter make
such showing.

(3) Congress did not intend to permit credits against
net income for the purposes of the surtax imposed
by the Act of 1913; not was it necessary that it should
do so.

Case No. 176
In re Ewa Plantation Company,

18 Haw. 530 (1908). Hawaiian Act of 1906.

A deduction for depreciation cannot be made where the
statute provides only for deductions on account of "nec-
essary expenses actually incurred," "losses actually sus-
tained," and "losses otherwise actually incurred," and
this is as true of the loss theoretically or practically sus-
tained on account of the expiration of a leasehold as on
account of wear and tear on tangible property.

Case No. 176
Little Miami Railway Company v. United States,

108 U. S. 277 (1883). Civil War Acts.

(1) In determining profits it was proper to deduct
from gross income amounts representing depreciation in

DEPRECIATION 1 19

the value of bonds and stocks, book accounts and other
choses in action, and depreciation of equipment.

(2) In a suit by the government to recover tax, the
burden is on the government to prove the tax is due.

Reversing 1 Fed. 700.

Case No. 176 A

Nashville, Chattanooga & St. Louis Ry. Co., v. United States,
T. D. 3126 (C. C. A., 6th Circ.) 1920. Act of 1909.

A railway company may not make a deduction on
account of depreciation from gross income, when, be-
cause of repairs, renewals and/or replacements to the
various units of the railroad, or because of appreciation
of some units offsetting depreciation in others, the road
as a whole is of as great a value at the end of the year,
as it was at the beginning.

Case No. 177
New York Life Insurance Company v. Anderson,

263 Fed. 627 (C. C. A. 2d Circ.) 1920. Act of 1909.

(1) "Depreciation" means "fall in value; reduction
of worth." Therefore, a reduction of value of securities
because of a change in market conditions should be allowed
as a deduction from gross income under the head of
depreciation.

(2) In a suit to recover taxes paid under protest, de-
fendant may introduce any evidence tending to show
that nothing is due, except that he may not embarrass the
plaintiff by way of surprise or other inequity.

(3) The difference between premiums received by a
mutual insurance company, and the cost of insurance,

120 AMERICAN INCOME TAX CASES

is. not income, where the excess is returned to the; policy
holder whether the return of such difference is voluntary
or required by law.

(4) Interest may be awarded in a suit against a col-
lector for the return of taxes illegally collected,

Modifying 262 Fed. 215.

Case No. 178
San Francisco & P. S. S. Company v. Scott,

253 Fed. 854 (D. C, N. D. Calif.) 1918. Act of 1909.

In computing net income a corporation may deduct
from gross income maintenance expenses, in addition
to the charge for depreciation, since '"depreciation, as
used in the statute is not to be confused with ordinary
repairs. It is intended to cover the estimated lessening
in value of the original property if any due to wear and
tear, decay, or gradual decline from natural causes, in-
adequacy, obsolescence, etc., which at some time in the
future will require the abandonment or replacement of
the property in spite of ordinary current repairs."

Case No. 179
Biwabik Mining Company v. United States,

242 Fed. 9 (C. C. A., 6th Circ.) 1917. Act of 1909.

(1) "Income" when used in an excise tax act means
the same as "income" when used in an income tax
act.

(2) "When the value of ore in place can be accurately
determined, the value of that part extracted and sold
should be subtracted from gross income in order to deter-
mine net income.

(3) That the taxpayer is a lessee is immaterial, since

DEPLETION 121

each ton of ore mined reduces by so much the capital
value of the lease right.
Reversed 247 U. S. 116.

Case No. 180
Forty Fort Coal Company v. Kirkendall,

233 Fed. 704 (D. C, N. D. Penn.) 1915. Act of 1909.

(1) A coal mining company exploiting its own property
may claim as a deduction by way of depreciation or de-
pletion the fair value in place as of January 1, 1909, of
each ton of coal mined during the taxable year.

(2) The government cannot base a claim for taxes on
mere bookkeeping.

Case No. 181
Goldfield Consolidated Mines Company v. Scott,

247 U. S. 126 (1918). Act of 1909.

(1) A mining corporation is not entitled under the act
considered to any allowance whatever on account of the
depletion or exhaustion of ore bodies caused by its oper-
ations during the year for which the tax is assessed.

(2) Nor is it entitled to a deduction from gross income
when determining net income equal to the cost value of
the ore in the ground before it was mined.

Case No. 182
Karr Piquet Mining Company v. Platteville,

167 N. W. 763 (Wise.) 1916. State Act of 1916.

A mining corporation which has an indefinite lease, and
which pays a royalty per ton of ore mined, is entitled to
no deduction on account of the removal of the ore, except

122 AMERICAN INCOME TAX CASES

the amount paid as royalty, since a leasehold is not equiv-
alent to ownership for purposes of income taxation. The
lessee is in a position comparable to a manufacturer; a
deduction from gross income equal to the cost of raw
material consumed is allowed to each.

Case No. 182 A
Opinion Attorney General,

T. D. 3089, rendered by A. Mitchell Palmer, 1920. Act of 1918

(1) A deduction for depletion in the case of mines, oil
and gas wells, as the result of discovery on or after March
1, 1913, is allowed only to the party or parties in posses-
sion at the time of the discovery and not to subsequent
purchasers.

(2) The value which may be set up in the case of the
discovery of mines, oil and gas wells, pursuant to the
second provision of Section 234 (a) (9) to be depleted in
accordance with such rules and regulations as the Com-
missioner may prescribe according to the peculiar condi-
tions in each case, is, in the case of a lease, to be equitably
apportioned between the lessor and lessee.

Case No. 183
Stanton v. Baltic Mining Company,

240 U. S. 103 (1916). Act of 1913.

(1) The Act of 1913 is not invalid because of alleged
discrimination between depreciation allowed mining cor-
porations and other corporations, or because of progressive
rates of taxation or disallowance to corporations of a
deduction from gross income of the value of dividends
received from other corporations.

(2) The limitation of depreciation allowance to mining
companies to 5% of gross mine value of ore removed

DEPLETION 123

does not render the tax invalid as being partly on prop-
erty rather than on income where actual depreciation
sustained was greater than 5%, for such a tax is "a true
excise levied on the results of the business of carrying on
mining operations."

Case No. 184
State ex rel. Pfister Land Company v. Milwaukee,

166 N. W. 23 (Wise.) 1917. State Act of 1911.

(1) Royalties paid by a lessee mining corporation to
the lessor are income, and not converted capital.

(2) A "reasonable allowance for depreciation of prop-
erty" has reference to ordinary depreciation of business
structures and personalty, and excludes depletion.

(3) Mining royalties are in effect payment for use and
occupation and come within the term "rentals."

(4) Where the property leased lies without the state,
the term "rentals" is to be defined, not by the interpre-
tation given by the courts of the state in which the prop-
erty is, but with a view to the intention of the legislature
enacting the law.

Case No. 185
Stratton's Independence v. Howbert,

207 Fed. 419 (D. C. Colo.) 1912. Act of 1909.

(1) A corporation operating mining property is not
entitled to a deduction from gross income equal to the
value of the ore extracted, since the net income of mining
corporations is the value of what is extracted, less the
cost of extraction and kindred expenses, plus a reasonable,
allowance for contingencies.

(2) The "reasonable allowance for depreciation" does
not contemplate an allowance for so-called wastage of

124 AMERICAN INCOME TAX CASES

the property, since depreciation does not ordinarily com-
prehend the removal of ore, timber, etc.

(3) The tax being an excise tax, it is constitutional to
measure it by income, although income itself may not
be taxable.

Affirmed 231 U. S. 399.

Case No. 186
United States v. Biwabik Mining Company,

247 U. S. 116 (1918). Act of 1909.

A mining company which paid $612,000 for a lease
enabling it to enter upon lands and remove ore, upon
payment of royalties, may not for the purpose of com-
puting net income subtract from its yearly gross income
that part of the value of the ore mined representing its
value in place when the law took effect, since the lease did
not convey the ore in place but only conferred a privilege
of mining.

Case No. 187
United States v. Nipissing Mines Company,

202 Fed. 803 (D. C, S. D. N. Y.) 1912. Act of 1909.

(1) A mining corporation is allowed a deduction as
depreciation (not as "return of capital") equal to the
value of the ore in place, which was removed.

(2) There is no distinction between depreciation of an
ore bed and of machinery.

(3) The tax cannot be based on bookkeeping entries.
Affirmed on other grounds, 206 Fed. 431; certiorari

denied 234 U. S. 765.

DEPLETION 125

Case No. 188
Von Baumbach v. Sargent Land Company,

242 U. S. 503 (1916). Act of 1909.

(1) Mining leases executed under the laws of Minnesota
are not sales of the ore in place, and rents and royalties
therefrom are profits subject to tax.

(2) It is not unconstitutional for Congress to tax roy-
alties from mining operations as income, without allow-
ance for return of capital value, for it is not every exhaus-
tion of capital that must be considered.

(3) The "allowance for depreciation" permitted does
not authorize a lessor of mining property to make a de-
duction on account of depletion, since "depreciation"
was used in its ordinary sense.

Reversing 207 Fed. 423 and 219 Fed. 31.

Case No. 189
Weiss v. Mohawk Mining Company,

264 Fed. 502 (C. C. A., 6th Circ.) 1920. Act of 1916.

(1) The deduction for depletion allowed in the act
considered "belongs of right to the fee owner" and a
lessee under a lease contract which does not pass title
in fee can claim no allowance on account thereof.

(2) For the purpose considered, "depreciation," " con-
sumption of capital assets" and "depletion" may be
said to have an equivalency of meaning.

Certiorari denied 41 Sup. Ct. 12.

126 AMERICAN INCOME TAX CASES

Case No. 190
Bailey v. Railroad Company,

106 U. S. 109 (1882). Act of 1864.

An income tax act which, inter alia, levies a tax against
carrier corporations with reference to moneys paid in bond
interest, in dividends and in construction, raises a pre-
sumption only that such payments are income of the
corporation; thus, when tax has been paid in one year
with reference to the amounts used in construction, and
a scrip dividend is the next year paid and charged against
the enhanced value of the property account resulting from
such construction, the latter dividend is not a basis for
taxation of the corporation, the income which is repre-
sented thereby having already been once taxed.

Case No. 191
Barnes v. The Railroads,

84 U. S. 294 (1872). Act of 1864.

(1) That section of the Act of 1864 levying a tax with
respect to dividends paid, and indemnifying the paying
corporation, which was required to withhold the amount
of the tax, against claims by the recipient of the dividend
for the amount withheld, imposed a tax on the paying
corporation.

(2) Dissenting opinion took opposite view, but said
that if the tax were an income tax on the recipient, the
dividends and interest would be income of the year in
which they became payable, relying on a ruling of the
Commissioner of Internal Revenue.

STATUTORY CONSTRUCTION 127

Case No. 192
Brady v. Anderson,

240 Fed. 665 (C. C. A., 2d Circ.) 1917. Act of 1913.

(1) An individual who died July, 1913, before the pas-
sage of the Act, is nevertheless liable to income tax with
respect to income received after March 1, 1913, and the
duty is on his executors to make return for him and pay
the tax.

(2) The income tax is not a property tax but is a per-
sonal tax measured by the amount of income received.

Case No. 193

Butterick Company v. United States;
Federal Publishing Company v. United States,

240 Fed. 639 (D. C, S. D. N. Y.) 1917. Acts of 1909 and 1913.

(1) The tax imposed during January and February,
1913, was by the Act of 1913 and not the Act of 1909,
although it was like the Act of 1909 an excise tax for
those months. The allowable deductions for the return
covering those months were governed by the Act of 1913.

Case No. 194
Faulkner v. Trefry,

118 N. E. 229 (Mass.) 1918. State Act of 1916.

(1) A statute imposing an income tax "in the year
1917 and each year thereafter," and declaring that "the
income received by persons since deceased shall be taxed
to their estates" does not clearly impose a retroactive
tax, and no tax is collectible from an executor on account
of income received by a decedent between January 1,
1916, and November 29, 1916, on which date he died,

128 AMEBICAN INCOME TAX CASES

and by his estate between November 29, 1916, and
January 1, 1917.

(2) A taxing statute not declared to be retroactive
cannot be made so by implication.

Case No. 196
Glasgow v. Rowse

43 Mo. 479 (1869). State Act of 1865.

(1) A statute levying a tax on income received in the
year next preceding assessment means that the fiscal
year used by the state for the assessment of other taxes
shall be used, and the collector has no authority to desig-
nate a different year.

(2) A legislature has inherent power to levy taxes, and
a constitutional provision that "taxation upon property
shall be in proportion to its value" does not preclude the
levy of an income tax on all incomes above $600, since
the provision has reference only to ad valorem taxes on
property, the tax imposed on income not being a property
tax.

Case No. 196
Goldman v. Trefry,

120 N. E. 74 (Mass.) 1918. State Act of 1916.

A pawnbroker who loans money upon and deals in
secondhand articles is taxable upon interest received
upon loans made in the course of such business as "in-
terest . . . from money at interest," rather than as
money "received from dealing and trafficking in intangible
personal property."

STATUTORY CONSTRUCTION 129

Case No. 197

Greenport Basin and Construction Company v. United

States,

269 Fed. 58 (D. C, E. D. N. Y.) 1920. Acts of 1917 and 1918.

(1) Under Section 252, Act of 1918, taxes collected
under color of the Act of 1917 may be recovered as a
matter of right, and it is not necessary to show duress or
protest in connection with payment thereof; and even if
such showing were necessary, it is sufficiently met by
computation of the tax under compulsion of the regula-
tions and the filing of a claim in abatement of the taxes
assessed before payment.

(2) That part of the Act of 1917 providing for the levy
of a tax of "twenty percentum of the amount of the net
income in excess of the deduction . . . and not in ex-
cess of fifteen percentum of the invested capital for the
taxable year; twenty-five percentum of the amount of
the net income in excess of fifteen percentum and not in
excess of twenty percentum of such capital; thirty-five
percentum of the amount of the net income in excess of
twenty percentum and not in excess of twenty-five per-
centum of such capital," et cetera, means that the tax is
to be computed by subdividing the net income according
to the percentages of invested capital given, subtracting
the allowable deduction from that part of the income fall-
ing within the lower subdivisions and computing the
taxes on the remainder at the rates specified, rather than
by subtracting from the entire net income the amount
of the allowable deduction, and subdividing the remainder
of the income according to the percentages of invested
capital given before computing the taxes at the rates set
forth.

130 AMERICAN INCOME TAX CASES

Case No. 197 A
Home Mutual Insurance Company v. Stockdale,

Fed. Cas. 6662 (C. C, D. La.) 1872. Acts of 1867 and 1870.

(1) A dividend declared and made payable in 1870 is
income to the stockholder for that year regardless that
it was earned in the preceding year.

(2) An Act of Congress declaring that a previous taxing
act which had expired by its own terms should be "con-
strued" to extend to a later date does not impose the
duty of withholding taxes on dividends paid in the interim
between the expiration and renewal of the Act.

Affirmed 87 U. S. 323.

Case No. 198
In re J. B. Castle,

18 Haw. 129 (1906). Hawaiian Act of 1905.

A taxpayer who purchased stock in 1898 and sold it in
1905 at a profit need not return such income for taxation
under a statute imposing a tax on all income derived
"during said taxation period."

Case No. 199
Jackson v. Northern Central Ry.,

Fed. Cas. 7142 (C. C, D. Md.) 1866. Act of 1864.

The tax required by the Act of 1864 to be withheld on
dividend and interest payments is an income tax of the
obligee; therefore, no withholding is required on such
payments made to nonresident aliens, since the Act does
not impose a tax on them.

Affirmed 74 U. S. 268.

STATUTORY CONSTRUCTION 131

Case No. 200
Lawrence v. Wardell,

T. D. 3102 (D. C, N. D. Col.) 1920. Act of 1916.

Citizens of the United States by reason of circumstances
other than that they are citizens of a possession of the
United States but who reside in the Philippines are taxable
in the same manner as citizens of the United States who
reside therein.

Case No. 201
Lining v. Glen,

1 McChord (S. C), 345 (1821). Local Act.

Where a taxing act requires all personal property to be
assessed at one-half of its value, and levies an income tax
on all incomes over $800, only such incomes one-half of
the amount of which exceeds $800 are taxable, since in-
come is property and it may be assessed at only one-half
of its value.

Case No. 202
Maguire v. Tax Commission,

120 N. E. 162 (Mass.) 1918. State Act of 1916.

(1) Income received by a Massachusetts beneficiary
from securities held in trust in Pennsylvania and there
taxed to the trustee is exempted from income taxation
in Massachusetts under a statute which provides that the
tax shall not be imposed "upon any person in respect to
income derived from any property exempt from taxation"
by prior law, such prior law providing that property held
in trust outside the commonwealth shall be assessed at the

132 AMERICAN INCOME TAX CASES

place the trustee resides, but if not there taxed, then to be
taxed to the beneficiary within the state.

(2) The general rule that personal property is taxable at
the domicile of the owner still obtains as to stocks, bonds
and like property.

(3) It is not unconstitutional to tax to a resident of
Massachusetts income from securities not taxed to the
trustee in Pennsylvania where the trust was created
and administered.

Affirmed 253 U. S. 12.

Case No. 203
Mandell v. Pierce,

Fed. Cas. 9008 (C. C. Mass.) 1868. Act of 1864.

Under a statute imposing a tax on annual income, the
estate of a person who dies in July is subject to tax with
respect to such income as accrued before her decease, and
her executor is liable to make the return and pay the tax,
although senible full credits are allowed, as if the return
were made for a full year. Legacy taxes which attach upon
a decedent's death cannot be said to be in lieu of income
tax otherwise payable by reason of income received be-
fore death.

Case No. 203 A
Merchants Insurance Company v. McCartney,

Fed. Cas. 9443 (C. C. Mass.) 1870. Act of 1864.

(1) A tax levied on dividends is a tax on the re-
cipient thereof, though collected from the paying cor-
poration.

(2) A dividend made up in part from earnings before
and in part from earnings after the passage of the act is
taxable only with reference to the latter part.

STATUTOKY CONSTRUCTION 133

(3) When tax on dividends has been once exacted from
the paying corporation, further tax is not collectible from
a recipient stockholder corporation, even in the absence of
specific exemption of dividends as income.

Case No. 204
Michigan Central R. Company v. Slack,

Fed. Cas. 9627-a (C. C. D. Mass.) 1876. Act of 1866.

Whether a tax on bond interest required to be withheld
from bondowners and paid by the obligor corporation be
a tax on the bond obligor or obligee, it is operative, even
when the obligees are nonresident foreigners, for when the
interest became payable it belonged to the obligor or the
obligee; if the former, the tax could be sustained as there
was jurisdiction over the person; if the latter, it could
likewise be sustained as a tax on money within the juris-
diction.

Affirmed 100 U. S. 595.

Case No. 205
12 Opinion Attorney General, 402,

Rendered by O. H. Browning, May 8, 1868, Civil War Acts.

The provision of law requiring banks to withhold and
pay to the government a tax of 5 % upon the amount
of all dividends is a tax upon the owner of the stock,
and when such owner is a state, the tax is not collectible.

Case No. 206
31 Opinion Attorney General, 148,

Rendered by A. Mitchell Palmer, August 7, 1917. Act of 1916.

The corporation franchise tax imposed by the laws of
New York (Laws, 1917, ch. 726) is not "a general income

134 AMERICAN INCOME TAX CASES

tax" within the meaning of the proviso of the Act of
1916 authorizing proper state officers of any state imposing
a general income tax to inspect and abstract corporate
returns of income required by federal law.

Case No. 207
People ex rel. Barcalo Manufacturing Company v. Knapp,

124 N. E. 107 (N. Y.) 1919. State Act of 1918.

(1) A law which provides for taxation on "net income
. . . presumably the same as the income upon which such
corporation is required to pay a tax to the United States"
adopts the definition of net income used by the federal
law, and the only authority of the taxing commission is to
fix the true and correct amount of the income as defined.

(2) "Net income" returned to the federal authorities
does not exclude the amount of excess profits tax paid
which is allowed as a credit before computing federal
income tax.

Case No. 208

People ex rel. Barcalo Manufacturing Company v. Knapp ;
American Brush and Broom Company v. Knapp,

176 N. Y. S. 337 (1919). State Act of 1917.

An act which imposes a franchise tax on corpora-
tions equal to 3 % of their "entire net income" which
is presumably the same as the income upon which the
corporation is required to pay a tax to the United States,
requires the tax to be computed on net income without
subtraction of the excess profits tax, even though the
federal income tax is imposed upon net income minus
excess profits tax.

See 120 N. E. 686.

STATUTORY CONSTRUCTION 135

Case No. 209
Philadelphia and R. R. Company v. Barnes,

Fed. Cas. 11087 (D. C, E. D. Pa.) 1870. Act of 1867.

(1) Where an act imposes a general income tax and
requires certain corporations to pay directly to the govern-
ment a percentage of dividends declared, the requirement
must be viewed as a tax on the stockholders' incomes
but collected at the source for the government's con-
venience.

(2) A dividend declared in 1869, but made payable in
1870 is income for the year received.

Reversed as to point one, 84 U. S. 294.

Case No. 210
Plumer v. Commonwealth,

3 Grattan (Va.), 645 (1847). State Act of 1846.

(1) A statute imposing a tax on all yearly incomes over
$400 in money, accruing to any individual in consideration
of the discharge of any office, "or in the service of any
body politic, joint stock company or otherwise, or in the
employment of any company, copartnership, individual or
individuals " does not reach the salary of a minister of the
gospel, since "employment" imports "business," and
excludes the duties of a minister, who cannot be said to be
in the "business" for "employment" of his congregation,
and the congregation of a church is a body not known
to the law.

(2) The fact that previous acts specifically exempted
ministers while this act did not, does not necessar-
ily require a decision that ministers' salaries are
taxable.

(3) Where the public are to be charged with a burden,

136 AMERICAN INCOME TAX CASES

the intention of the legislature to impose that burden must
be explicitly and distinctly shown.

(4) A revenue law is properly classified as penal.

Case No. 211
Railroad Company v. Collector,

100 U. S. 595 (1879). Act of 1866.

(1) A statute imposing a tax on certain corporations
in amount of 5 % on "interest or coupons, dividends
or profits, whenever and wherever payable," and author-
izing withholding of such amount of tax is an excise tax
on the corporation, and semble it was not therefore un-
lawful to require such withholding from nonresident aliens.

Case No. 212
Railroad Company v. Jackson,

74 U. S. 268 (1868). Act of 1864.

(1) A state may not levy a tax on the interest of bonds
of a railroad corporation whose property securing the
bonds lies within and without the state and the company
is incorporated in both states in which its property is, and
where the bonds are held and owned by a nonresident
alien.

(2) An act imposing an income tax on citizens and
resident aliens, and authorizing the withholding from
bond interest payments of the amount of the tax does not
require a withholding in the case of bonds owned by non-
resident aliens since it was not the intent to impose a tax
on such persons, and a tax required to be withheld from
bond interest is in fact a tax on the owner of the bonds.

Affirming Fed. Cas. 7142.

STATUTORY CONSTRUCTION 137

Case No. 213
Schuylkill Nav. Company v. Elliott,

Fed. Cas. 12497 (C. C. W. D. Pa.) 1875. Acts of 1867 and 1870.

(1) An Act of Congress which provides that a pre-
vious taxing act shall be "construed" to extend be-
yond its original date of expiration is effective as new
legislation.

(2) Congress may impose a prospective tax by a new
statute although the measure of the tax is governed by
the income of the past year.

Case No. 214
State ex rel. American Manufacturing Company v. Koeln,

211 S. W. 31 (Mo.) 1919. State Act of 1917.

(1) When necessary to effect the intendment of an
income tax law, "assessor" will be read as "collector."

(2) Allowance by the act of a deduction from income
tax otherwise payable of taxes "paid . . . upon real or
personal property to the state" excludes taxes paid to a
school district.

Case No. 215
Stockdale v. Insurance Companies,

87 U. S. 323 (1873). Acts of 1869-70.

(1) Whether the tax on dividends arising from the
earnings of a corporation for the year 1869 be viewed as
a tax on the shareholder or on the corporation it was in-
tended to tax the earnings for that year by the section
which limited the duration of the tax. i

(2) Section 17 of the Act of July 14, 1870, "constru-
ing" certain sections of the Act of 1864 to extend its pro-

138 AMERICAN INCOME TAX CASES

visions to 1870, is not an attempt by the legislature to
exert judicial functions and is valid as an extension of the
law.

(3) Congress may enact a tax retrospectively.

Dissenting opinion holding that a tax on dividends re-
quiring the obligor to withhold and pay is a tax on the
shareholder, that the Act was not extended and since the
dividends were declared in 1870 and were therefore in-
come of that year to the taxpayer, the corporation was
not required to withhold, since the law expired with
1869.

Affirming Fed. Cas. 6662.

Case No. 216
United States v. Erie Ry. Company,

106 U. S. 327 (1882). Act of 1866.

The tax directed against interest on corporate bonds
by the Act of 1866 is in fact an excise tax on the corporate
debtor and it is therefore collectible in cases where the
bonds and the person owning them are both without the
jurisdiction of the United States.

Reversing Fed. Cas. 15056.

Case No. 217
United States v. Grand Rapids and I. R. Company,

239 Fed. 163 (D. C. S. D. Mich. S. D.) 1916. Act of 1909.

(1) The three-year clause of the fifth subdivision of
Section 38 of the Act of 1909 is not a limitation upon the
right of the government to sue for unpaid taxes but at
most is a limitation upon the right of the collecting officers
to make assessment and enforce payment by summary
statutory proceedings.

(2) In the collection of taxes imposed by statute, the

STATUTORY CONSTRUCTION 139

government is not confined to summary proceedings
therein provided, but may resort to plenary suit.

(3) Where a tax of a fixed percentage is so definitely
described that its amount can be determined on evidence
by a court a suit for the tax will lie without assessment.

Affirmed 256 Fed. 153.

Case No. 218
United States v. Johnston,

124 U. S. 236.

The contemporaneous construction of a statute by
those charged with its execution, especially when it has
long prevailed, is entitled to great weight, and should
not be disregarded or overturned except for cogent
reasons unless it be clear that such construction is
erroneous.

Case No. 219
United States v. Moore,

96 U. S. 760.

The construction given to statute by those charged
with its execution is always entitled to the most respectful
consideration and it ought not be overruled without the
most cogent reasons.

Case No. 220
United States v. Nashville, C. & St. L. Ry.,

249 Fed. 678 (C. C. A., 6th Circ.) 1918. Act of 1909.

(1) The provision of the Act of 1909 for reassessment
in case of false or fraudulent returns means untrue or
incorrect and not necessarily "intentionally" or "fraudu-
lently false."

140 AMERICAN INCOME TAX CASES

(2) Where the law itself imposes a tax which can be
made certain in amount by examination of evidence, an
action of debt by the government will lie to collect it,
even though the statute gives another remedy, by way
of assessment.

(3) It may be assumed that no right of action would
accrue to the government had there been true return
and assessment based thereon, to recover an additional
amount because of original error on the part of the Com-
missioner, or his subsequent change of mind as to the
propriety of the amount assessed.

Case No. 221
United States v. Tilden,

Fed. Cas. 16619 (C. C, S. D. N. Y.) 1878. Civil War Acts.

(1) The Act of 1861 was repealed by the Act of 1862,
without a saving clause as to taxes accrued thereunder
but not paid, and no taxes under that Act could be col-
lected after January 1, 1862.

(2) The government may sue for taxes due, whether
or not its statutory remedies have been pursued as to
all or any part of the tax claimed.

(3) The government is not estopped from suing for a
tax greater in amount than that originally assessed.

Case No. 222
Wisconsin Trust Company v. Widule,

159 N. W. 630 (Wise.) 1916. State Act of 1915.

(1) A statute requiring every fiduciary to make return
of all income accruing in his hands for a beneficiary, is
operative as to income from property bequeathed by a
resident to a trust company within the state on trust for

CONSTITUTIONALITY 141

a nonresident, notwithstanding that two of the cotrustees
also reside without the state.

(2) An apportionment was correctly made by the tax
commission of the business done and the earnings of the
foreign corporation whose stock was held in trust, and
which did business within and without the state.

(3) "Income" is used in the common ordinary sense.

Case No. 223
Alderman v. Wells,

67 S. E. 781 (Sou. Car.) 1910. State Act of 1906.

(1) A graduated income tax does not take property
without due process, nor deny equal protection of the
laws.

(2) A graduated income tax is one in which some per-
sons are totally exempt or partially exempt by reason
of higher or graduated rates laid on greater incomes.

(3) It is not double taxation that corporate property
be subjected to tax, and dividends are also required to
be included in taxable income.

(4) A provision of the constitution, that an annual
tax to defray each year's expenses shall be levied, is not
infracted by the imposition of an income tax which is to
extend beyond the year

(5) The title of an income tax law which recites that it
is "to raise revenue for the support of the state "govern-
ment by the levy and collection of a tax on income" suffi-
ciently complies with a constitutional provision that
"no tax shall be levied except in pursuance of a law which
shall distinctly state the object of the same to which
object the tax shall be applied."

142 AMERICAN INCOME TAX CASES

Case No. 224
Atwood v. Johnson,

176 N. W. 589 (Wise.) 1919. State Act of 1919.

The legislature's powers of classification in enacting
an income tax law are broad. "It is enough that there
be no discrimination in favor of one as against another in
the same class, and that the assessment and collection of
tax is not inconsistent with natural justice. . . . Un-
less we can say that the exemptions are manifestly un-
just, arbitrary or whimsical, courts have no power to
interfere. . . . The fact that the surtax of the individual
begins with the fourth thousand while that of corporations,
joint-stock companies or associations begins with the
first one thousand does not make the exemption arbi-
trary or whimsical. ..."

Case No. 225
Brushraber v. Union Pacific Ry. Company,

240 U. S. 1 (1916). Act of 1913.

(1) With proper averments a stockholder's suit to re-
strain a corporation from voluntarily paying a tax charged
to be unconstitutional is not in violation of R. S. 3224.

(2) The Sixteenth Amendment did not enlarge the
power of taxation, but only removed the limitation there-
tofore imposed as to the levy of direct taxes.

(3) The uniformity clause in the Federal Constitution
relates only to geographical uniformity.

(4) The Fifth Amendment to the Federal Constitution
is not a limitation on the taxing power.

(5) Congress may levy progressive rates of income
taxation.

CONSTITUTIONALITY 143

Case No. 226

Campbell v. Shaw;
Honolulu Iron Works v. Shaw,

11 Haw. 112 (1897). Hawaiian Act of 1896.

An income tax law which exempts to the extent of
$2,000 all incomes less than $4,000, but which allows no
exemption to incomes of more than $4,000 is unconstitu-
tional in that it violates a constitutional provision that
each member of society "shall be obliged to contribute
his proportion or share to the expense of (his) protection."

Case No. 227
Commonwealth v. Werth,

82 S. E. 696 (Va.) 1914.

It is not invalid double taxation that a lawyer is com-
pelled to pay an excise tax for the privilege of practicing
his profession, and a tax on the income therefrom.

Case No. 228
Equitable Life Assur. Soc. v. Hart,

173 Pac. 1062 (1918). Mont. State Act of 1917.

(1) An excise tax on corporations measured by their
net income is not invalid as double taxation, because there
is already imposed a license tax on certain corporations
of which plaintiff is one, nor is the earlier license tax
act repealed by the general repealing clause in the later
act.

(2) The Act is not invalid because it discriminates
between corporations deriving all of their income from
sources within the state, and those deriving only part
therefrom.

144 AMERICAN INCOME TAX CASES

(3) Nor is it an arbitrary discrimination to disallow
foreign corporations to deduct taxes not imposed by the
state, when determining net income.

Case No. 229
Flint v. Stone Tracy Company,

220 U. S. 107 (1910). Act of 1909.

(1) The Corporation Excise Tax Act of 1909 is con-
stitutional.

(2) Joint-stock companies and associations are prop-
'erly classified with corporations, since they enjoy much
the same benefits.

(3) Where a direct tax may be void it is possible to reach
nontaxable property by means of an excise tax measured
by the income from that property.

(4) The exemption from Federal taxation of state
agencies is confined to those agencies used for govern-
mental purposes.

(5) It is no part of the essential governmental function
of a state to provide transportation, fight, water, etc.,
and therefore public service corporations operated for
private gain are taxable; the true distinction is between
those operations which are essential to the execution of
government functions and which can only be carried on
by the state itself and those which are of a private char-
acter.

Case No. 230
F. S. Royster Guano Company v. Commonwealth,

253 U. S. 412 (1920). Va. State Act of 1916.

A state income tax law which taxes all the income of
domestic corporations doing business within and without
the state, and exempts entirely from taxation domestic

CONSTITUTIONALITY 145

corporations having incomes only from sources without
the state is arbitrary and violates the equal protection
clause of the Fourteenth Amendment of the Federal
Constitution.

Dissenting opinion on the ground that the classifica-
tion was reasonable.

Case No. 231
In re C. Brewer and Company, Ltd.,

23 Haw. 96 (1915). Hawaiian Act of 1915.

That insurance companies pay an excise tax measured
by the gross amount of their earnings from risks in Hawaii
and also an income tax on their net income which is in
part made up from earnings from risks in Hawaii does
not render the tax invalid on the ground of double taxa-
tion.

Case No. 232
Lott v. Hubbard,

44 Ala. 593 (1870). State Act.

(1) It is not objectionable as double taxation that a
taxpayer is required to pay a tax on his income and also
the real estate in which he has invested his income.

(2) Where a taxpayer refuses to make a return of his
true net income, and the assessor makes a return thereof
to the best of his knowledge, in the absence of statute,
recovery may not be had of the difference between the
amount collected and the amount which would have
been payable on his true income had he made return
thereof.

146 AMERICAN INCOME TAX CASES

Case No. 233
Ludlow Saylor Wire Company v. Wollbrink,

205 S. W. 196 (Mo.) 1918. State Act of 1917.

(1) A tax on income is not a tax on property; therefore
a constitutional provision that taxes must be laid accord-
ing to value, which obviously refers to taxes on prop-
erty as such, is not infringed by an act imposing income
taxes.

(2) A constitutional provision that taxes shall be uni-
form on the same class of subjects is satisfied by a classi-
fication of persons according to their net incomes.

(3) It is within the same provision to enact that per-
sons who have paid taxes on real or personal property
shall be separately classified and treated, by allowing to
such persons a credit equal to the amount of property
taxes paid.

Case No. 234
Opinion of the Justices,

63 N. H. 635 (1866). State Act of 1865.

A statute providing for the taxation of incomes from
notes, bonds and other securities not otherwise taxed
under the laws of the state, is valid except so far as it
purports to levy a tax on incomes from bonds of the
United States.

Case No. 235
Opinion of the Justices,

108 N. E. 570 (Mass.) 1915.

(1) A tax on income is in reality a tax on the property
from which it springs, and such a tax must be within

CONSTITUTIONALITY 147

the constitutional provisions governing the taxation of
property.

(2) The mere right to hold and own stocks of foreign
corporations and stocks, bonds and like property which
derive their value from property otherwise taxed cannot
be made the subject of an excise tax.

(3) Even if it be constitutional to exempt from taxation
stocks of foreign corporations, and stocks, bonds and like
property which derive their value from property other-
wise taxed, such exemption cannot be coupled with the
condition that the income therefrom be subjected to tax
at rates different from those applicable to personal prop-
erty, for a tax upon income from property is a tax on the
property itself and must be proportional with taxes on
all other property.

Case No. 236
Peacock v. Pratt,

121 Fed. 772 (1903). Hawaiian Act of 1901.

(1) The exemption from income tax of schools, colleges
and fraternal benefit societies is not an illegal discrimina-
tion.

(2) The Fourteenth Amendment does not prevent the
imposition of an income tax.

(3) The exemption of insurance companies is not il-
legal where other kinds of taxation are levied on such
companies and the exemption is made dependent on pay-
ment of the other taxes.

(4) An exemption of $1,000 to individuals, and nothing
to corporations, is not unreasonable.

(5) Failure to exempt judges' salaries, provision for
unreasonable searches, etc., does not ipso facto vitiate
the law, since the remainder of the law may stand, and

148 AMERICAN INCOME TAX CASES

the question will be postponed until an actual case is
brought up.

(6) The Hawaiian Income Tax Law of 1901 in valid.

Case No. 237
Pollock v. Farmers Loan and Trust Company,

157 U. S. 429 (1895). Act of 1894.

(1) A court of equity has jurisdiction to prevent a
threatened breach of trust in the misapplication or diver-
sion of the funds of a corporation by illegal payments out
of its capital or profits.

(2) Direct taxes must be apportioned among the several
states in accordance with numbers. Taxes on real estate
are direct taxes and taxes on the rent or income of real
estate, being substantially taxes on the real estate, are the
same.

Case No. 238
Pollock v. Farmers Loan and Trust Company,

158 U. S. 601 (1895). Act of 1894.

(1) Taxes on real estate being indisputably direct taxes,
taxes on the rents or income of real estate are equally
direct taxes.

(2) Taxes on personal property, or on the income of
personal property are likewise direct taxes.

(3) Unapportioned income taxes on the rents and in-
come from real and personal estate being direct and there-
fore unconstitutional, the entire portion of the law dealing
with income taxation, comprehending as it does one scheme
of taxation, is necessarily invalid.

CONSTITUTIONALITY 149

Case No. 239
Robertson v. Pratt,

13 Haw. 590 (1901). Hawaiian Act of 1901.

(1) An income tax statute is not necessarily entirely-
void because it seeks to tax subjects beyond the consti-
tutional limit of taxation.

(2) Classification not arbitrary is permissible in an
income tax act.

(3) Individuals and corporations may be classed
separately, and a $1,000 exemption may be given to
individuals and denied to corporations. Such exemption
is not invalid as excessive, nor is it invalid as arbitrary
where it is given to all families alike regardless of size.

(4) In estimating the income from sales of personal
property a taxpayer may lawfully be permitted to omit
products produced and consumed by himself and not sold.

(5) Foreign insurance companies may be put in a class
by themselves and taxed on gross income.

Case No. 240
Savannah v. Hartridge,

8 Ga. 23 (1850). City Act of 1842.

(1) A statute authorizing a municipality to levy "assess-
ments upon all real and personal estate" does not au-
thorize the levy of an income tax, income not being prop-
erty within the meaning of the term.

(2) A real doubt in a taxing statute must be resolved in
favor of the taxpayer.

150 AMERICAN INCOME TAX CASES

Case No. 241
Shaffer v. Carter,

262 U. S. 37 (1920). Okla. State Act of 1915.

(1) Where the state laws provide that all of a taxpayer's
property shall be subject to a hen to secure the payment of
income taxes, and provide no means of removing said hen,
a court of equity has jurisdiction of a bill to remove the
hen, and having jurisdiction will settle all other issues
raised concerning the tax or its validity.

(2) The constitutionality of a tax depends upon its
practical operation and effect, and not on mere definitions
or theoretical distinctions respecting its nature and qual-
ity; thus the privileges and immunities clause of the federal
constitution is not violated because as to residents the
income tax operates in -personam while as to nonresidents
it operates in rem, residents not being subject to a like tax
in rem, if the tax is substantially the same in effect both on
residents and nonresidents.

(3) The fact that nonresidents are allowed deductions
only of losses within the state while residents are allowed
deductions on account of all losses does not violate the
privileges and immunities clause or the equal protection
clause, residents being taxed on all income, and nonresi-
dents only on income from within the state.

(4) A tax on net income is valid even though part of
such income is made up of income from operations in
interstate commerce.

(5) The state is justified in treating properties, consist-
ing of oil producing land, oil and gas mining leaseholds,
etc., of a person engaged in the production of oil and gas,
as a single unit, and placing a hen thereon to secure pay-
ment of taxes on the income received therefrom; it is not
necessary to decide, therefore, whether it is a denial of due

CONSTITUTIONALITY 151

process of law for a state to lay a lien on the property of a
nonresident taxpayer other than the property from which
springs the income taxed in order to secure payment of
income taxes owing.
Affirming 250 Fed. 873.

Case No. 242
Shaffer v. Howard,

250 Fed. 873 (D. C, E. D. Okla.) 1918. State Act of 1915.

(1) A tax upon income from a business is directed at
neither the person who receives nor the property from
which the income arises, but at the privilege of making,
producing, etc., the income itself, and the right to lay such
tax depends upon the protection of the person who receives
or of the business which helps create that income.

(2) That a tax law subjects all of the property of a tax-
payer to a lien until an assessment is satisfied is sufficient
ground for the intervention of a court of equity to remove a
cloud from title, the law providing no plain remedy to
accomplish that end.

(3) Jurisdiction over property from which income
arises, or over the person to whom it accrues, is sufficient
basis for an income tax, and the former ground is none the
less sufficient when property within the state is owned and
managed by nonresidents from without the state, although
it can be conceded that such ownership and management
are important component factors in the production of
the income.

Dissenting opinion filed, based on the ground that an in-
come tax cannot at the same time be directed against
persons and property; that if directed against persons it
cannot reach nonresidents, and if directed against property
in an amount measured by the income therefrom received

152 AMERICAN INCOME TAX CASES

by nonresidents it is void because of unconstitutional
discrimination against such nonresidents.
Affirmed 252 U. S. 37.

Case No. 243
Smith v. Dirckx,

223 S. W. 104 (Mo,; 1920. State Act of 1919.

(1) A constitutional provision that, "no ex post facto
law, nor law impairing the obligation of contracts, or
retrospective in its operation . . . can be passed by the
General Assembly," operates to prevent the enforcement
of an income tax law passed in May, 1919, purporting to
increase the rate of tax on the entire year's income, so far
as concerns income received between the first of the year
and the date of the passage of the law.

Dissenting opinion on the ground that a year's income
is a unit, the size of which cannot be known, or which
cannot come into existence before the end of the year;
therefore, any law taxing incomes is not retrospective if it
is passed before December 31 of the year, the income of
which is sought to be taxed.

Case No. 244
Springer v. United States,

102 U. S. 586 (1880). Act of 1865.

A tax on gains, profits and income (whether from real or
personal property or from earnings not stated or discussed)
is an excise or indirect tax and Congress need not therefore
apportion such tax among the several states according to
population.

CONSTITUTIONALITY 153

Case No. 245
State ex rel. Bolens v. Frear,

134 N. W. 673 (Wise.) 1912. State Act of 1911.

(1) Taxation of income from property is not the same as
taxation of the property itself, and therefore there is no
double taxation by reason of a property tax on the capital
and additional tax on the income.

(2) Estimated rental value of a residence may be taxed
as income to the owner living therein.

(3) It is a valid exercise of the power of classification
to provide that the income of husband, wife and children
under eighteen years should be reported in one return and
only one exemption allowed.

Case No. 246
State ex rel. Meyer Bros. Drug Company v. Koeln,

222 S. W. 389 (Mo.) 1920. State Act of 1917.

A taxpayer whose income tax was assessed in March,
1919, who paid property taxes thereafter in the same year,
and who paid his income tax in December, 1919, may not
deduct from gross income to ascertain net income the
amount of the personal taxes paid when the section of the
law allowing such deduction was repealed before the
personal property taxes were assessed, since no right
became vested in the taxpayer before that time.

154 AMERICAN INCOME TAX CASES

Case No. 247
State v. Pinder,

108 Atl. 43 (Del.) 1919. State Act, Chap. 26, Vol. 29.

(1) "Income" is property within the meaning of the
Delaware Constitution; therefore, authorization of prop-
erty taxes includes authorization of income taxes.

(2) The law is not void because of want of uniformity
when it provides for the exemption of incomes under
$1,000, of state salaries, of real estate rentals, and farmers'
incomes, because the exemption is not of classes of persons
but of property, which is allowed by the Constitution.

(3) The law does not violate the Fourteenth Amend-
ment.

Case No. 248
State ex rel. Wickham v. Nygaard,

150 N. W. 513 (Wise.) 1916. State Act of 1913.

Although the Wisconsin Constitution forbad the dimi-
nution or increase of the compensation of any public
officer during his term of office, the amendment thereto
allowing graduated taxes on "incomes" was sufficiently
broad to allow of the imposition of a state income tax with
respect to the salary received by a state judge.

Case No. 249
State Tax on Foreign-Held Bonds,

82 U. S. 300 (1872). Penn. Act of 1868.

A state may not tax the interest on bonds of domestic
corporations issued before passage of the taxing law, se-
cured by mortgage on property within the state, but ac-
tually held by persons residing outside the state at the

CONSTITUTIONALITY 155

place of their residence, when the state courts have deter-
mined that a mortgage is merely a chose in action, con-
veying no property right to the mortgagee in the property
mortgaged, because the state is without jurisdiction of
the property sought to be taxed of of the owner thereof,
and any assertion of a so-called tax in these circumstances
amounts to an impairment of the obligation of a contract,
notwithstanding that the highest courts of the state con-
cerned have held the tax to be valid.

Dissenting opinion filed on the ground that the Supreme
Court is without jurisdiction because no constitutional or
federal question was presented.

Case No. 250
Towne Manufacturing Company v. Travis,

D. C, S. D. N. Y., Judge Knox, 1919. N. Y. State Act of 1919.

The provisions of the state income tax law are invalid
and unconstitutional "in so far as they attempt to as-
sess, lay and collect a tax upon citizens of the United
States who are not residents of the State of New York,
and who are citizens of other states, without according
them the privileges and immunities afforded by said
citizens of the State of New York and residents therein,"
and thus a law which denies to citizens of other states
exemptions equivalent to those granted citizens of the
enacting state is invalid.

Affirmed 252 U. S. 60.

156 AMERICAN INCOME TAX CASES

Case No. 261
Travis v. Yale and Towne Manufacturing Company,

262 U. S. 60 (1920). New York State Act of 1919.

(1) A state may levy an income tax on income of non-
residents arising from sources within the state, and there
is no unconstitutional discrimination in confining the
deductions allowable to nonresidents to expenses, losses,
etc., connected with the income taxed, although residents
may deduct all expenses, losses, etc., but are taxed on all
income.

(2) Employers of nonresidents may constitutionally
be required to withhold taxes due from then on account
of salaries paid them, even though such requirement is
omitted in the case of residents.

(3) It is constitutional to apply the withholding re-
quirement to a nonresident corporation doing business
within the state.

(4) A discrimination against nonresidents of a state
necessarily discriminates against those who are citizens
of other states.

(5) A state income tax levied generally on incomes of
residents and nonresidents abridges the privileges and
immunities clause of the federal constitution if it allows
to residents fixed exemptions on account of marital status
and dependents but disallows such exemptions to non-
residents, and the infirmity is not cured by an allowance
to nonresidents of an exemption in amount equal to a
portion of income tax they may have paid to the state of
which they are citizens, or a provision excluding from
taxable income of nonresidents annuities, dividends and
interest from within the state not from a business, etc.,
subject to tax.

(6) A violation of the privileges and immunities of

CONSTITUTIONALITY 157

citizens of other states cannot be condoned by those states
or cured by retaliation.

Case No. 262

Tyee Realty Company v. Anderson;

Thorne v. Anderson,

240 U. S. 115 (1916). Act of 1913.

(1) The Act considered was not beyond the authority
conferred on Congress by the Sixteenth Amendment.

(2) The Act was not void because of retroactive oper-
ation for a designated time, or because of alleged discrim-
inations which it created, including the provision for a
progressive tax on individuals' incomes and the method
prodded in the statute for computing the taxable income
of corporations.

Case No. 253
United States v. Erie Ry. Company,

Fed. Cas. 15056 (D. C, S. D. N. Y.) 1877. Act of 1866.

(1) An income tax may not be laid by Congress which
will reach the income received by nonresident aliens on
bonds secured by property within the United States,
when both the person and the bonds are outside of the
jurisdiction of the United States.

Reversed 106 U. S. 327 (on ground tax was an excise
on domestic corporation); rehearing denied 107 U. S. 1.

158 AMERICAN INCOME TAX CASES

Case No. 254
United States Glue Company v. Oak Creek,

247 U. S. 321 (1918). Wise. Act of 1911.

A tax upon net income is not void as an unconstitutional
regulation of interstate commerce where part of the in-
come taxed arises from such commerce, provided no dis-
crimination against such income as compared with other
income is made, for such a tax constitutes one of the or-
dinary and necessary burdens of government from which
there can be no escape because one happens to be engaged
in interstate commerce.

Affirming 153 N. W. 241.

Case No. 256
Baldwin Tool Works v. Blue,

240 Fed. 202 (1916). State Act of 1915.

(1) A state act imposing an excise tax on corporations
for the privilege of doing business, based on net income
from business done within the state is not unconstitutional
as imposing a burden on interstate commerce, nor as
depriving of equal protection of the laws.

(2) It is not invalid because of double taxation when
the corporations affected are also required to pay a fran-
chise tax.

(3) The federal courts will not enjoin the collection of
a state tax where an adequate and complete remedy is
provided by statute.

CONSTITUTIONALITY: INTERSTATE COMMERCE, EXPORTS 159

Case No. 256
Peck v. Lowe,

234 Fed. 126 (D. C, S. D. N. Y.) 1916. Act of 1913.

Since taxation which precedes exportation is valid, it
must be that taxation which follows exportation is like-
wise not invalid as a tax on exports. The constitutional
inhibition begins with the act of exportation and must
end with its completion. After export, profits come, and
taxes with them.

Affirmed 247 U. S. 165.

Case No. 257
Peck v. Lowe,

247 U. S. 165 (1918). Act of 1913.

(1) The Sixteenth Amendment does not extend the
power of taxation to new and excepted subjects but
merely removes the necessity for apportionment.

(2) A tax upon profits derived from the exportation of
goods is valid, exportation being affected only indirectly
and remotely, and the tax being levied after exportation
is completed and all expenses are paid and losses ad-
justed.

Affirming 234 Fed. 125.

Case No. 258
Superior v. Allouez Bay Dock Company,

164 N. W. 362 (Wise.) 1917. State Act of 1916.

An income tax is not a tax on interstate commerce
though levied against a corporation which derives its
entire income from interstate commerce business, be-
cause an income tax is not a tax on property; thus, though

160 AMERICAN INCOME TAX CASES

it is measured by the receipts from business, it is not a
tax on business.

Case No. 269
Collector v. Day,

78 U. S. 113 (1870). Civfl War Acts.

A state is as sovereign and independent as the general
government, and since the former may not embarrass
the latter by taxation, the converse must also be true,
and the means and instrumentalities for carrying into
effect the powers reserved by the constitution to the
states and the people are therefore free from taxation.
Thus, the general government may not levy an income
tax on the salary of a state judicial officer.

Case No. 260
Evans v. Gore,

262 Fed. 660 (D. C, W. D. Ken.) 1919. Act of 1918.

A tax upon the incomes of all citizens, and which does not
discriminate against judges of the United States, is not
invalid as contravening Article 3, Section 1 of the con-
stitution, providing that judges' compensations "shall
not be diminished during their continuance in office,"
since such a tax is a personal tax and "is nothing other
than the requiring of the judge his fair share of the
burden."

Reversed 253 U. S. 245.

constitutionality: judicial salaries 161

Case No. 261
Evans v. Gore,

263 U. S. 245 (1920). Act of 1920.

(1) Congress has no power to levy income taxes with
reference to judicial salaries, although the incomes of
judges from sources other than salaries as such are taxable.

(2) The sixteenth amendment was of no effect beyond
removing the necessity for apportionment among the
several states of income tax levies.

Reversing 262 Fed. 550.

Case No. 262
Freedman v. Sigel,

Fed. Cas. 6080 (Circ. Ct., S. D. N. Y.) 1873. Civil War Acts.

The federal government cannot tax the salary of a
justice of the Superior Court of the city of New York,
even though his salary is payable out of the treasury of
the city and not out of the state treasury, and the salary
was fixed by a board of supervisors and not by a state
statute, on the authority of Collector v. Day, 11 Wall. 113.

Case No. 263
In re Taxation of Salaries of Judges,

42 S. E. 970 (N. C.) 1902. State Act.

A constitutional provision that "the salaries of judges
shall not be diminished during their continuance in office"
prevents the imposition of an income tax on the salaries
of judges of the Supreme Court of the State during their
tenure in office.

162 AMEBICAN INCOME TAX CASES

Case No. 264

Letter from Justice Taney to Secretary of the Treasury

Chase,

167 U. S. 701 (1863). Act of 1862.

Congress is forbidden by that section of the constitu-
tion preventing the diminution of salaries of judges in
office from including within the purview of an income
tax statute salaries of judges of United States courts
during their tenure as such, and collection from such
judges of an income tax on their salaries for judicial
services by the Treasury Department is unconstitu-
tional.

Case No. 265
New Orleans v. Lea,

14 La. Ann. 197 (1859). Local Act of 1866.

The provisions of a state constitution that judges
"shall at stated times receive a salary which shall not be
diminished during their continuance in office" prevents
the application of an income tax to such salaries.

Case No. 266
13 Opinion Attorney General, 161,

Rendered by E. R. Hoar, October 23, 1869.

(1) The Civil War income tax acts are unconstitutional
in so far as they attempt to levy a tax on salaries of federal
judges and the President.

(2) It would not be unconstitutional to tax the salaries
of officers taking office after the passage of the Act. How-
ever, the presumption is against the intention to impose
such a tax, since it would, in the case of the President, be

constitutionality: judicial salaries 163

forbidden to remove the tax while he was in office, and it
would result in inequalities of taxation as between judges.

Case No. 266 A
Opinion Attorney General

T. D. 3049, rendered by A. Mitchell Palmer, 1920. Act of 1918.

The compensation of a judge of the Supreme Court or
of an inferior court of the United States is subject to in-
come tax imposed by a statute enacted before his term of
office begins.

Case No. 267
31 Opinion Attorney General, 475,

Rendered by A. Mitchell Palmer, May 6, 1919. Act of 1918.

The imposition of a general income tax is not a reduce
tion of salaries when applied to all citizens of the sam-
class, and does not therefore fall within the provision of
the constitution preventing the increase or diminution of
salaries of the President or federal judges; the incomes of
such officers on account of their official duties are there-
fore taxable.

Case No. 268
Purnell v. Page,

45 S. E. 634 (N. C.) 1903. State Act.

(1) A state may not constitutionally impose an income
tax on income paid for services to a United States
judge.

(2) An income tax is not a property tax "but is a per-
centage laid on the amount which a man receives."

(3) An officer of the Federal Government is taxable
ad valorem on the amount of cash on hand on taxing day,

164 AMERICAN INCOME TAX CASES

whether or not such is received as payment for services
rendered to the Federal Government.

Case No. 269

Biscoe v. Tax Commissioners;
Blackman v. Tax Commissioners,

128 N. E. 16 (Mass.) 1920. State Act of 1916.

The compensations received by a vice president and
assistant counsel of a railway company who were appointed
by the Federal Railroad Administration to serve in similar
positions while the railroad was operatod by the Federal
Administration are not taxable under a state income tax
act.

Case No. 270
Dobbins v. Commissioners,

14 U. S. 436 (1842).

(1) A state law (of Penn.) levying a tax on "all offices
and posts of profit" is not operative in respect to an office
held under the United States (a) because it would hinder
the general government in carrying out the duties and
rights secured by the Constitution; (b) would give to the
states national revenue contrary to law; (c) would in effect
interfere with the operation of a law of Congress fixing
the salaries of United States officers.

(2) A tax is not a charge paid for protection of laws,
nor is it a personal charge. It is a duty to pay levied upon
persons by reason of the goods they own, to enable the
state to support itself.

constitutionality: sovereign state 165

Case No. 271
Melcher v. City of Boston,

60 Mass. 73 (1845). State Act.

(1) A clerk in a federal post office is not an officer of
the United States in such sense as to exempt him from
state income taxes otherwise collectible with reference
to the compensation derived by him from the United
States for the performance of his duties.

(2) Qucere whether a resident of Massachusetts is not
by virtue of such residence liable to pay income tax with
reference to all of his income, no matter from what source
derived.

Case No. 272
13 Opinion Attorney General, 67,

Rendered by E. R. Hoar, 1869. Acts of 1864, 1866 and 1867.

The tax required by the Acts of 1864, 1866 and 1867 to
be withheld from all payments of interest is a tax upon the
creditor, and when that creditor is a municipality loaning
money to a private corporation the tax is not to be as-
serted unless the Acts are specific, for assuming that the
loan is not made by the municipality in furtherance of
a governmental activity, still the difficulty of separating
governmental from nongovernmental functions gives rise
to a presumption against an intention on the part of Con-
gress to burden municipalities with such tax.

See 84 U. S. 322.

166 AMERICAN INCOME TAX CASES

Case No. 273
13 Opinion Attorney General, 439,

Rendered by A. T. Akerman, 1871. Civil War Acts.

(1) A tax generally against dividends of a private cor-
poration is not operative against dividends on shares of
stock owned by a state.

(2) The Commissioner is authorized, not compelled,
to refund taxes erroneously collected, but representing a
government that abhors injustice, he should do so in all
cases except where the fault of the taxpayer or the waiver
of his rights or his long acquiescence or other sufficient
circumstances discredit the claim.

Case No. 274
30 Opinion Attorney General, 252,

Rendered by J. C. McReynolds, 1914. Act of 1913.

Special assessment districts, when lawfully created
under the authority of the states for the purpose of im-
provement of streets and public highways, the provision
of sewerage, gas and light and the reclamation, drainage,
or irrigation of considerable bodies of land within the
states, are "political subdivisions" thereof within the
meaning of the Act.

Case No. 276
31 Opinion Attorney General, 441,

Rendered by A. Mitchell Palmer, May 6, 1919. Act of 1918.

The salaries and wages of state officers and employees
cannot be constitutionally taxed by the federal govern-

constitutionality: sovbkeign state 167

ment, and the Act of 1918 should not therefore be con-
strued to include them.

Case No. 276
United States v. Railroad Company,

84 U. S. 322 (1872). Act of 1864.

(1) The section of the Act of 1864 which provided that
certain corporations indebted upon bonds should pay
a tax of 5% with respect to such interest, and deduct the
amount from interest due the bondholder was a tax on
the bondholder imposed through the agency of the cor-
poration.

(2) The city of Baltimore is an arm of the state and
while acting in a sovereign capacity is entitled to the
same exemptions. Thus, it was not subject to the tax
described when it had invested in railroad bonds, the
success of the railroad presumably redounding to the
benefit of the city and its people. But if the city should
be made a trustee to receive funds and distribute them to
relieve the poor, aid science and literature, etc., "it is
quite possible" that such revenues would be subject to
taxation.

Case No. 277
United States v. Ritchie,

27 Fed. Cas. 16168 (D. C. Md.) 1872. Civil War Acts.

(1) The salary of a state's attorney is exempt from
federal income tax.

(2) The federal government may not apply the specific
exemption allowed generally to individuals under a taxing
act against exempt income as that in effect deprives per-

168 AMERICAN INCOME TAX CASES

sons receiving exempted income of the exemption to
which they are entitled.

Case No. 278
Conn. General Insurance Company v. Eaton,

218 Fed. 188 (D. C. Conn.) 1914. Act of 1909.

(1) A stock life insurance company with a mutual
department, which collects premiums in advance, but
repays at the end of the year either in cash or credit, the
difference between the cost of the insurance and the
amount first paid, may exclude from gross income under
the Act of 1909 the amount so returned in cash or credited
to the policy holder. Such excess premium paid or credited
to the policy holder is not a dividend within the meaning
of the Act.

(2) Such a company owning bonds which it has pur-
chased at a discount and premium may deduct the amor-
tized value theoretically subtracted each year from the
bonds purchased at a premium if it makes a corresponding
addition in the case of bonds purchased at a discount.

(3) It need not take into income amounts representing
deferred premiums and interest thereon since their value
is uncertain.

Affirmed 223 Fed. 1022.

Case No. 279
Conn. Mutual Life Insurance Company v. Eaton,

218 Fed. 206 (D. C. Conn.) 1914. Act of 1909.

(1) A stock life insurance company with a mutual
department, which collects premiums in advance, but
repays at the end of the year either in cash or credit, the
difference between the cost of the insurance and the
amount first paid, may exclude from gross income under

INSURANCE COMPANIES 169

the Act of 1909 the amount so returned in cash or credited
to the policy holder. Such excess premium paid or credited
to the policy holder is not a dividend within the meaning
of the Act.

(2) Disbursements for furniture, fixtures, safes, etc.,
which do not enhance the value of the property but merely
facilitate business and rearrange the layout are deduc-
tible.

(3) It need not take into income amounts representing
deferred premiums and interest thereon since their value
is uncertain.

(4) All losses on sales of real estate are deductible, al-
though there might, if the company is a stock company,
be some question whether profits from such sales would be
income or capital increment.

Affirmed 223 Fed. 1022.

Case No. 280

Eaton v. Conn. General Life Insurance Company;
Eaton v. Conn. Mutual Life Insurance Company,

223 Fed. 1022 (1915). Act of 1909.

The excess of premiums paid by mutual life insurance
policyholders to the insurance company over the cost
of the insurance, and by the company credited back to
the policy holders who apply it to the purchase of addi-
tional insurance or to other purposes, is not "dividends"
but abatement of premium and does not furnish the basis
for taxation of the insurance company.

Affirming 218 Fed. 188 and 218 Fed. 206.

170 AMERICAN INCOME TAX CASES

Case No. 281
Fink v. Northwestern Mutual Life Insurance Company,

267 Fed. 968 (C. C. A., 7th Circ.) 1920. Act of 1909.

(1) The excess of premiums paid by mutual policy
holders over the cost of the insurance, which was set
aside for the policy holders by the company and by them
applied to the purchase of additional insurance or as part
payment of further premiums owing, is not income of
the company for the year when so applied, such excess
having already been taxed when first received by the
company, unless received before the passage of the Act,
in which case it is tax-free.

(2) Accrued interest and premiums are not income un-
til received.

(3) Amortization of bonds purchased at a premium,
due to approaching maturity is not an allowable deduc-
tion, and is not included within the term "depreciation."

(4) A net addition to a reserve to secure payment of
the amount of a matured policy is not deductible where
such addition is offset by a decrease in the reserve set
aside in anticipation of the maturity of the policy.

Modifying 248 Fed. 568.

Case No. 282
Herold v. Mutual Benefit Life Insurance Company,

201 Fed. 918 (C. C. A., 3d Circ.) 1913. Act of 1909.

(1) So-called dividends paid annually to policy holders
by a mutual life insurance company doing business on
the level premium plan which arise from the excess of
premiums collected during previous years over actual
ascertained requirements are not taxable as part of the
company's "net income received by it during such year"

INSURANCE COMPANIES 171

under the Act of 1909, having been taxed once as a part
of the income of the year received.

(2) If Congress meant to tax such dividends more than
once, "it is well settled that the language imposing
such an exceptional burden should be clear and un-
ambiguous."

Affirming 198 Fed. 199; certiorari denied 231 U. S.
755.

Case No. 283
Insurance Company of North America v. McCoach,

218 Fed. 905 (D. C, E. D. Penn.) 1914. Act of 1909.

(1) Interest accrued on unmatured interest coupons
need not be accounted as income under the 1909 Act.

(2) The phrase "the net addition if any required by
law to be made to reserve funds," describing a deduction
allowed to insurance companies under the Act of 1909
means "that when a company is so situated that a part
of its yearly net income is not available for corporate use
but is required to be set aside and placed beyond the
reach of the company as absolutely as if it has been paid
away, then it may be deducted as if it had been so paid,
but not otherwise." Thus where a company with a sur-
plus of $4,000,000 and a reserve of $202,404 sustains a
loss of $88,600, there is no occasion to add that sum to
the reserve, since the loss would be chargeable against
the surplus and would not therefore decrease the reserve.

Reversed 224 Fed. 657; affirmed 244 U. S. 585.

172 AMEKICAN INCOME TAX CASES

Case No. 284
Insurance Company of North America v. McCoach,

224 Fed. 667 (C. C. A., 3d Circ). Act of 1909.

(1) "Reserves required by law" additions to which
are an authorized deduction include reserves for unpaid
losses and claims, adjusted or unadjusted, required by a
state insurance commissioner acting under statutory au-
thority, as well as reinsurance reserves specifically re-
quired by statute.

(2) It is immaterial that the corporation have a large
surplus, and the deduction on account of additions to
reserves must be allowed if the outstanding claims against
the company are so great as to require an addition
to the appropriate reserve, notwithstanding that the
charge ordinarily would when ascertained be made against
surplus.

Dissenting opinion on the ground that unpaid claim
reserves are required by state authorities only for the
purpose of enabling the Commissioner of Insurance to
determine whether the corporation is solvent, and whether
it should be allowed to continue business; such reserves
are not therefore within the purview of the law.

Reversing 218 Fed. 905; reversed 244 U. S. 585.

Case No. 285
Jewelers Safety Fund Society v. Lowe,

T. D. 3078 (D. C, S. D. N. Y.) 1920. Acts of 1909 and 1913.

(1) The premium receipts of a mutual trade society,
organized for the purpose of affording protection to its
members from loss of property by fire, theft, barratry
and transportation risks are part of its income whether
in the form of deposits or otherwise.

INSURANCE COMPANIES 173

(2) Interest on bank deposits and from investment of
premium deposits are likewise to be included in income,
for these are profits to the insurance society; furthermore,
the society may well be termed a fire insurance company
and the items mentioned are specifically declared by the
act to be income of such companies.

Case No. 286
Lederer v. Penn. Mutual Life Insurance Company,

268 Fed. 81 (C. C. A., 3d Circ.) 1919. Act of 1913.

(1) The provision that "life insurance companies shall
not include as income in any year such portion of any
actual premium received from any individual policy
holder as shall have been paid back or credited to such
individual policy holder or treated as an abatement of
premium of such individual policy holder within such
year" requires each policy holder to be treated separately
and allows a company to exclude from its income of
any year only such excess over the cost of insurance
as shall have actually been paid or credited to a pol-
icy holder who has during such year paid premiums
to the company and may not exclude greater amounts
with respect to any policy holder than the sum he has
paid.

(2) Since the sums so paid back or credited are excluded
from gross income, no further deduction is allowable as
"sums other than dividends paid within the year on policy
and annuity contracts."

(3) It is immaterial to allowance of the benefit that
the redundancy paid back or credited is in part made up
of forfeitures or comes from any other source, except
that interest on such redundancy may not be excluded or
deducted from gross income because the interest is in

174 AMERICAN INCOME TAX CASES

fact a "dividend," being part of the earnings of the com-
pany, and the deduction thereof is specifically forbidden
in the clause allowing deduction of "sums other than div-
idends" paid on policy contracts.

(4) A policy providing for payment on the death of
the insured to the beneficiary of the face of the policy in
installments, with interest, enables the company to de-
duct from gross income not only the principal amounts
paid the beneficiary, but the interest thereon as well, as
"sums other than dividends paid within the year on
policy and annuity contracts."

Reversing 247 Fed. 559; reversal affirmed 252 U. S.
523.

Case No. 287
Lumber Mutual Fire Insurance Company v. Malley,

256 Fed. 380 (D. C. Mass.) 1916. Act of 1909.

(1) The Act of 1909 contemplated a cash basis of
income; therefore only premiums actually paid within
the year are taxable income.

(2) No taxable income arose to the insurance company
where a policy holder, instead of taking in cash the "div-
idend" due him elected to apply it to a new contract of
insurance.

(3) If a party plaintiff abandons his claim as to a de-
duction during trial, the court will not take further notice
of it; thus, where the plaintiff claimed the right to deduct
the amount of returned premiums actually paid, and
abandoned, during trial, his claim, the court will not
further notice it, although (it seems) the court would
have ruled favorably to the plaintiff if the claim had been
pressed.

(4) Following the expressed opinion of both counsel,
the plaintiff may recover from the defendant collector an

INSURANCE COMPANIES 175

illegally exacted tax even though it was not paid to him,
but to his predecessor in office.

Case No. 288
Maryland Casualty Company v. United States,

62 Ct. Cls. 201 (1917). Act of 1909.

(1) The Act of 1909 contemplates returns of income
on a cash receipts and disbursements basis.

(2) Payment to an insurance company's agent is pay-
ment to the company and such payments must be ac-
counted in the year of receipt by the agent.

(3) "Reserve funds required by law" as used in the
Act excludes reserves set up for ordinary operating
expenses, such as may be suggested by business pru-
dence.

(4) The net decrease in reserve funds, additions to
which are allowed as a deduction is income.

Affirmed 251 U. S. 342.

Case No. 289
Maryland Casualty Company v. United States,

251 U. S. 342 (1920). Acts of 1909 and 1913.

(1) So far as concerns corporations, the Acts of 1909
and 1913 have to do only with income received; but where
payment of funds to a company agent works a full dis-
charge of debts owing to the company, and the funds are
subject to draft by the company any time after payment
to the agent, all of such funds should be included in the
company's gross income, as received by it in the year of
such payment to the agent, whether or not they have
been transmitted to the home office in such year.

(2) Deductions authorized to insurance companies on

176 AMERICAN INCOME TAX CASES

account of the "net addition, if any, required by law to be
made within the year to reserve funds" are allowable only
with respect to additions to such reserves as are commonly
recognized as pertaining to insurance law; additions to
reserves to provide for the ordinary nmning expenses of a
business, definite in amount, and payable currently, such
as taxes, salaries, etc., are not deductible.

(3) The condition that such reserves must be "required
by law" is met if the requirement is made by a State
Department of Insurance acting in pursuance of compe-
tent statutory authority.

(4) A decrease in reserves, the net addition to which is
deductible from gross income when computing net income,
is to be included in gross income of the year of the decrease,
provided such decrease results in an increase in the assets
of the corporation available for its free beneficial use in a
real and not a mere bookkeeping sense.

(5) The right to sue for the recovery of taxes is barred
by R. S. 3226 if an appeal to the Commissioner is not first
prosecuted, as well as by R. S. 3227 if suit is not instituted
within two years from the accrual of the cause of action,
and it is immaterial, so far as suit to recover taxes paid
under original returns is concerned, that the government
has filed amendments of the original returns rendered by
the taxpayer increasing the tax and that the suit against
the government is not barred as to such amended returns,
for when such amendments increase the amount of tax
originally paid they stand separately as new assessments.

Affirming 52 Ct. Cls. 201.

INSURANCE COMPANIES 177

Case No. 290
McCoach v. Insurance Company of North America,

244 V. S. 686 (1917). Act of 1909.

The amounts of accrued, but unpaid, losses which the
state insurance commissioner of Pennsylvania, acting
under competent statutory authority, requires to be listed
each year as liabilities, are not ' 'reserve funds required by
law," additions to which are deductible from gross
income when ascertaining net income of insurance
companies.

Affirming 218 Fed. 905, and reversing 224 Fed.
657.

Case No. 291
Mutual Benefit Life Insurance Company v. Herold,

198 Fed. 199 (D. C. N. J.) 1913. Act of 1909.

(1) The term "dividends" as used in the act refers to
distributions made by ordinary corporations and not to the
excess over the cost of insurance paid in by holders of
mutual insurance policies and returned annually to them,
and such excess is not taxable as profits or income of the
company, even where the resulting credit to the policy
holder is used by him to cut down his premium payment or
purchase additional insurance.

(2) Additions, required by state commissioners of in-
surance, to reserves against unpaid amounts due to
beneficiaries on policies that had matured but were unpaid
because the beneficiary availed himself of an option to
have the amount of the policy paid in installments, are
deductible from gross income when computing net income.

(3) Uncollected and deferred premiums, and interest,
are not income until received within the meaning of the

178 AMERICAN INCOME TAX CASES

Act, since the Act contemplates returns on a cash, as dis-
tinguished from an accrual, basis.

(4) An ordinary expenditure for renewal of office
equipment, even to considerable amount, is deductible
from gross income as a current expense, since it does not
result in an addition to assets.

Affirmed 201 Fed. 918; certiorari denied 231 U. S. 755.

Case No. 292
National Life and Accident Insurance Company v. Craig,

251 Fed. 624 (C. C. A., 6th Circ.) 1918. Act of 1909.

(1) "Net addition . . . required by law to be made
within the year to reserve funds" allowed as a deduction
to insurance companies is to be read in the light of insur-
ance terminology and comprehends only such reserves as
are required by law and as are peculiar to insurance
companies; thus, additions to reserve funds required by a
state insurance commissioner to be maintained to meet
contingent losses, salaries, rents, etc., while conservative
business, are not deductible.

Case No. 293
New York Life Insurance Company v. Anderson,

262 Fed. 215 (D. C, S. D. N. Y.) 1919. Act of 1909.

(1) Where insurance companies are required by law to
repay to their policy holders by way of cash or credit
certain parts of their profits, a deduction of such repay-
ment is allowable when computing net income.

(2) Depreciation, as used in the Act of 1909 does not
include fluctuation on bonds, since the word implies
reduction in value due to wear and tear only.

Modified 263 Fed. 527.

INSUBANCE COMPANIES 179

Case No. 294
Northwestern Mutual Life Insurance Company v. Fink,

248 Fed. 566 (D. C, E. D. Wise.) 1917. Act of 1909.

(1) So-called dividends of a mutual insurance company
paid to its policy holders, representing the difference
between the cost of insurance and amounts paid to the
company by its policy holders, are not to be included in the
company's net income.

(2) Premium and interest items accrued and due, but
unpaid should not be included in income, under the Act
of 1909.

(3) The net addition to a reserve maintained in antici-
pation of the payment of installment payment life policies,
the insured being deceased, is deductible, when the state
law requires the insurance commissioner to make "valua-
tions of all outstanding policies, additions thereto and
other obligations" for the purpose of fixing reserves, and
the reserve mentioned may be classed as an insurance
reserve.

(4) Section 3225, R. S., providing that in the case of a
second assessment on a list which in the opinion of the
collector was false or fraudulent or contained any under-
statement or undervaluation, no tax collected shall be
recovered by suit unless it be proved that the list or return
was not false or fraudulent and did not contain any under-
statement or undervaluation, merely raises a presumption
as to the validity of the collector's opinion, and does not
operate to prevent the recovery of tax unlawfully collected
where the understatement or undervaluation was innocent
and made in the exercise of honest judgment.

Modified 267 Fed. 968.

180 AMERICAN INCOME TAX CASES

Case No. 295
Penn Mutual Life Insurance Company v. Lederer,

247 Fed. 559 (D. C, E. D. Pa.) 1918. Act of 1913.

(1) The sense in which tax laws are strictly to be con-
strued is that no tax can be imposed by courts or the
executive through judicial or administrative construction,
since the people and they only can impose taxes, acting
through the legislature.

(2) Section 2 (G) (b) providing that mutual life insur-
ance companies shall not include as income in any year
such portion of any actual premium received as shall
have been paid back or credited within such year
means:

(a) The gross income is to be reduced by the amount
of premiums returned if previously received no
matter whether received before or during the tax-
able year, or

(b) whether received before or after the effective
date of the Act.

(c) The deduction allowed includes not only the

premium paid but the accretions thereto, while
held by the company.
Reversed 258 Fed. 81; reversal affirmed 252 U. S.
523.

Case No. 296
Lederer v. Penn Mutual Life Insurance Company,

252 U. S. 523 (1920). Act of 1913.

The provision that life insurance companies "shall not
include as income in any year such portion of any actual
premium received from any individual policy holder as
shall have been paid back or credited to such individual

INSURANCE COMPANIES 181

policy holder, or treated as an abatement of premium of
such individual policy holder within such year," does not
allow such a company when computing income subject to
tax to subtract from the total of gross premiums received
during the year the total of repayments or credits to
policy holders, but simply means that in computing income
such portion of the gross premiums "which, although
entered on the books as received, was not actually re-
ceived, within the year, because the full premium was, by
means of the dividend, either reduced, or otherwise
wiped out to that extent," shall be excluded from gross
income.
Affirming 258 Fed. 81.

Case No. 297
Prudential Insurance Company v. Herold,

247 Fed. 681 (D. C. N. J.) 1918. Act of 1909.

(1) A joint-stock company which writes participating
and nonparticipating life policies need not include as
income amounts returned by way of "dividends" to any
of its policy holders as excessively charged, for even if any
distinction is to be drawn between dividends on partici-
pating and nonparticipating policies (the question as to
dividends on participating policies having been settled
by Mutual Benefit Life Insurance Company v. Herold,
201 Fed. 918) it is certain the nonparticipating policy
"dividends did not arise from income received during the
tax years."

(2) Additions to a reserve, required by a State Commis-
sioner of Insurance, for all business written, including that
on which premiums had not been paid are deductible as a
"net addition . . . required by law to be made within the
year to reserve funds," where the state law vests in the

182 AMERICAN INCOME TAX CASES

Commissioner authority to regulate insurance business
done within the state.

Case No. 298
Crocker v. Malley,

260 Fed. 817 (C. C. A., 1st Circ.) 1918. Act of 1913.

(1) The Act of 1913 imposes an income tax on associa-
tions, whether or not they derive any benefit from laws
permitting such organization or whether there are such
laws, for since the tax is not an excise tax, it is not nec-
essary that there be any privilege given.

(2) The Act of 1913 recognizes only two broad classes of
persons subject to taxation, viz., individuals and groups.
Income received by trustees on property committed to
their care and management upon trust to distribute the
proceeds at such time as they might deem wise cannot be
said to accrue to the individual beneficiaries. The trustees,
however, compose an association within the ordinary
meaning of the word and the income is taxable to them
as such.

Upon rehearing it was said that the language used was
not to be construed as defining or limiting the term "indi-
viduals," presumably recognizing that fiduciaries might be
taxable as such.

Reversed 249 U. S. 223.

Case No. 299
Crocker v. Malley,

249 U. S. 223 (1919). Act of 1913.

A declaration of trust, under which trustees are to hold
property for the beneficiaries, collecting and distributing
the income therefrom in their discretion, they being sub-
ject to no control by the beneficiaries, except that their

TAXABLE ENTITIES 183

compensation could be changed, a vacancy could be filled
and the terms of the trust modified upon the written con-
sent of a majority in interest, did not bring into being a
joint-stock association for income tax purposes, whether
the trustees be regarded separately from the others, the
beneficiaries be grouped together, or whether both classes
be considered as one, since to do so would be a perversion
of a well-known institution of the law.
Reversing 250 Fed. 817.

Case No. 300
Eliot v. Freeman,

220 U. S. 178 (1910). Act of 1909.

The Act of 1909 levies taxes only on such joint-stock
companies and associations as were organized under the
law of some state or the United States; therefore Massa-
chusetts common-law trusts were exempt, since they
derived their existence not from statute but from com-
mon law.

Case No. 301
Haiku Sugar Company v. Johnstone,

249 Fed. 103 (C. C. A., 9th Circ.) 1918. Act of 1913.

(1) A joint-stock company ordinarily consists of a large
number of persons between whom there is no special
relationship of confidence, while a partnership is gen-
erally made up of a few, and no member is at liberty to
retire and substitute another as in a joint-stock associa-
tion. In a joint-stock company the business is generally
managed by a board of directors, while in a partnership
any member may bind the firm. Where a corporation is a
partner the doctrine of mutual agency may make ad-
ministration more difficult, but this does not affect the

184 AMERICAN INCOME TAX CASES

legal question. Thus where two or more corporations
express an intention to form a partnership, legally valid
under the local law, that intention is not to be defeated
because the management is vested in a board of directors
and shares of interest are distributed to the member-
corporations, since these are only incidents of the corpora-
tions' rights to form a partnership, and the entity is not
to be treated as a joint-stock corporation.

(2) In the interpretation of taxing statutes, they must
not be extended beyond the clear import of the language
used, and doubts are to be construed most strongly
against the government.

Case No. 302
United States v. Coulby,

261 Fed. 982 (D. C. N. D. Ohio) 1918. Act of 1913.

(1) A partnership has no separate existence for the
purposes of the Act of 1913; therefore, partners making
individual returns may exclude from income subject to
normal tax a proportionate part of dividends received by
the partnership from stock of corporations themselves
subject to tax.

(2) The express declaration to this effect contained in
the Act of 1916 was a confirmation of the true interpreta-
tion of the Act of 1913.

(3) Doubtful language must be construed most strongly
against the government.

Affirmed 258 Fed. 27.

EXCESS PROFITS TAX 185

Case No. 303
United States v. Coulby,

268 Fed. 27 (C. C. A., 6th Circ.) 1919. Act of 1913.

(1) The statement that a partnership has no legal
existence apart from the members who compose it is too
broad unless confined to the subject discussed by the
District Court (federal income taxation).

(2) The language of the Act is of such doubtful import
as to require construction against the government.

Affirming 251 Fed. 982.

Case No. 304
Cadwalader v. Lederer,

D. C, E. D. Pa., 1920. Act of 1917.

Whether or not a man has more than one trade or busi-
ness is a question of fact for a jury; thus whether or not
the income received by a lawyer from executor's fees or
commissions is received by him from practicing his pro-
fession and is to be thrown in with his other income when
determining the amount of his excess profits tax is to be
decided by a jury.

Case No. 305
Cartier & Holland v. Doyle,

T. D. 3080 (D. C, W. D. Mich.) 1920. Act of 1917.

(1) A copartnership engaged in buying, selling and
dealing in timber and like products is not a "trade or
business having no invested capital or not more than a
nominal capital" where the funds used in carrying on
business were borrowed upon the security of collateral
loaned to the firm by the members thereof, for although the

186 AMERICAN INCOME TAX CASES

statute excludes "borrowed capital," including capital
borrowed solely on the firm's credit, from "invested
capital," the property pledged to the banks was a part
of the working capital, and is "invested capital."

(2) Whether money borrowed on the notes of the firm
indorsed by the individual partners and largely upon their
credit is "invested capital" of the firm is not determined.

Case No. 306

Delasky and Thropp Circular Woven Tire Company v.

Iredell,

268 Fed. 377 (D. C. N. J.) 1920. Act of 1917.

(1) A corporation with $12,000 paid in capital, and a
patent acquired for consideration of one dollar, deriving
its income from royalties paid for use and manufacture of
the article patented, is a corporation "having no invested
capital or not more than a nominal capital," since the
actual amount of invested capital was not used in the
business of producing income but only to meet running
expenses, and patents not paid in for property or shares
may not be included in invested capital. There is a dis-
tinction between "invested capital" and "nominal capi-
tal," but patents are capital in name only, under the
general definition of capital.

(2) A business which derives its income from royalties
from a patent is in reality a business rendering personal
service, since a patent is only the concrete embodiment
of the owner's skill and knowledge which in effect it sells
to its lessees of the patent rights.

(3) The Secretary of the Treasury cannot by regulation
enlarge the scope of a revenue act.

EXCESS PROFITS TAX 187

Case No. 307
La Belle Iron Works v. United States,

Court of Claims, June 28, 1920. No. 34603. Act of 1917.

(1) Increase in value of plaintiff's ore lands, first de-
clared to be surplus, and afterwards treated as basis for
stock dividend, did not thereby become earned surplus or
individual profits or invested capital. Stock dividends
add nothing to, or take nothing from, a corporation's
invested capital.

(2) Inequalities which arise in application of statute to
particular cases cannot be corrected by judicial construc-
tion where the act is otherwise valid.

(3) Where the act is ambiguous or uncertain, construc-
tion of administrative officers charged with its enforce-
ment is entitled to great respect.

Case No. 308

Porter v. Lederer,
267 Fed. 739 (D. C, E. D. Penn.) 1920. Act of 1917.

(1) Commission agents, doing business as a partner-
ship, are not to be denied the privilege of being taxed as a
"trade or business having no invested capital or no more
than a nominal capital" because in more or less isolated
transactions they bought and sold substantial bills of
goods on their own account, using their own credit for the
purpose, even where the profits were undrawn and had
accumulated to a substantial, amount, though not used in
business.

(2) The excess profits tax levied by the Act of 1917 is
essentially an excise tax, and should tax only such profits

188 AMERICAN INCOME TAX CASES

as spring from the business done, and not those from
sporadic or casual transactions.

Case No. 309
American Printing Company v. Commonwealth,

120 N. E. 686 (Mass.) 1918. State Act of 1918.

An act requiring all domestic corporations to pay a
tax to the state upon income on which the corporation
"is required to pay a tax to the United States," permits a
taxpayer corporation to deduct from net income as first
computed the amount of any war excess profits tax paid
the federal government and the state tax is computed on
the balance, since the corporation is not "required to pay
a tax to the United States" upon the first amount.

See 175 N. Y. S. 337.

Case No. 310
Baltimore v. Baltimore Railroad,

77 U. S. 543 (1870). Act of 1862.

A stipulation that a bond obligor "shall pay all and any
expense incidental to the issue of the bonds" does not
render it liable for the payment of income tax on interest
payments required by federal law to be withheld there-
from V

Case No. 311
Catawissa Railway Company v. P. & R. R. Company,

255 Pa. 269 (1916). Act of 1913.

A covenant by a lessee to pay all taxes "assessed or
imposed ... on the demised premises or any part
thereof, or on the business there carried on or on the
receipts gross or net derived therefrom" does not require

TAX-FREE COVENANTS 189

the lessee to pay the rent to the lessor without deduction
for the income tax required by the federal government to
be withheld by obligors and paid to it, since that tax is
on the rent paid by the lessor which the covenant does not
mention and expressio unius est exclusio alterius.

Case No. 312
Clopton v. P. & R. R. Company,

54 Penn. 366 (1867). Act of 1866.

A provision in a bond that it shall become void upon
payment by the obligor of all principal and interest at the
times specified "without any deduction, defalcation or
abatement to be made of anything for or in respect of any
taxes, charges or assessments whatsoever" does not re-
quire payment by the obligor of the full amount of interest
when the federal or state government levies a tax on the
interest and demands that such tax be withheld by the
obligor and paid to it.

Case No. 313
Codman v. American Piano Company,

118 N. E. 344 (Mass.) 1918. Act of 1913.

A covenant in a lease requiring lessee to pay all taxes
"payable for or in respect of the leased premises" does not
require the lessee to pay the lessor's income tax by reason
of the rents received, because a tax on real estate is one
thing, and a tax on income from the real estate another.

190 AMERICAN INCOME TAX CASES

Case No. 314

Des Moines Union Railway Company v. Chicago and
Great Western,

177 N. W. 90 (1920). Act of 1913.

A covenant in a lease that the lessee shall pay the lessor
"one-third of all taxes or assessments, special or other-
wise, and public charges of every kind and nature that
shall or may be taxed or assessed against the (lessor)
company or its property" does not require payment
by the lessee of the tax levied by the United States on
income.

Case No. 315
Haight v. Pittsburg, Ft. W. & C. R. Company,

Fed. Cas. 6903 (C. C, W. D. Penn.) 1867. Act of 1864.

A stipulation in a corporate mortgage requiring pay-
ment of interest and principal "without any deduction
... for or in respect of any taxes, charges or assess-
ments whatsoever" does not prevent the corporation
from deducting from interest payments amounts required
by federal law to be paid to the Treasury as income tax
on the bondholder, since the income tax is laid on the bond-
holder, and the contract mentioned does not impose any
duty on the obligor except to pay the debt and interest
without deduction for taxes levied on it.

Affirmed 73 U. S. 15.

Case No. 316
Haight v. Railroad Company,

73 U. S. 15 (1867.) Act of 1864.

A bond covenant to pay principal and interest "with-
out any deduction ... for or in respect of any taxes

TAX-FREE COVENANTS 191

. • . whatsoever" does not make the obligor liable to
pay the obligee's income tax with respect to such interest,
even where the government authorizes and requires the
obligor to withhold and pay such tax, and the obligor
is discharged of its duty when it pays the interest less the
tax so withheld.
Affirming Fed. Cas. 5903.

Case No. 317
Kimball v. Cotting,

118 N. E. 866 (Mass.) 1918. Act of 1913.

(1) A covenant by a lessee to pay all taxes which may
be payable upon or against the rent for or in respect to the
period between the assessment day and the last prior
assessment day or in respect to the period between the
first of such assessment days and one calendar year prior
thereto, whether assessed upon the same as rental or
income, requires the payment of federal income taxes,
the assessment day being December 31.

(2) A provision relieving a lessee from payment of any
other taxes, after establishing a liability for such payment
for a period between the first assessment day and one
calendar year prior thereto, does not relieve from pay-
ment of taxes retroactively laid.

Case No. 318
Kimball v. Cotting,

126 N. E. 661 (Mass.) 1919. Acts of 1913, 1916 and 1917.

A lessee who covenants to pay "any taxes or excises
which during the term may be lawfully levied, laid or
assessed upon or against the rent payable hereunder
whether levied or assessed upon the same as rental or as

192 AMERICAN INCOME TAX CASES

income of any person or persons entitled thereto" is
liable as well to pay the lessor's surtax by reason of the
rent as he is the normal tax, since the surtax "is only an
additional income tax."

Case No. 319

Little Schuylkill Nav. R. & C. Company v. P. & R. R.

Company,

69 Pa. Sup. Ct. 122 (1918). Act of 1913.

A lessee who undertakes to "pay all taxes . . . which
. . . shall be assessed or imposed under any existing or
future law on the demised premises or any part thereof,
or on the business there carried on, or on the receipts
gross or net derived therefrom . . ." is not liable for
payment of the income tax levied against the lessor by
reason of the rental received for reasons stated in the case
of Catawissa R. Co. v. P. & R. R. Co., 255 Penn. 269.

Case No. 320
N. Penn. Ry. Company v. P. & R. Ry. Company,

95 Atl. 100 (Penn.) 1915. Act of 1913.

(1) Where a lessee railway company agreed to pay all
taxes upon the "yearly payments herein agreed to be
made" by the lessee for which the lessor would otherwise
be liable, the lessee must pay the income tax assessed to the
lessor by reason of such payments.

(2) There is a clear distinction between a tax on income
received from rent, and a tax on rent. The tax on income
is a tax irrespective of the source, or in other words, it is
a tax on the net revenue derived from all sources. The
net income from real estate may be much less than the
rent derived from the same property. The parties may

TAX-FKEE COVENANTS 193

settle between themselves what part the rent is of the
lessor's entire net income.

Case No. 321
Ehrlich v. Brogan,

105 Atl. 511 (Penn.) 1918. Act of 1913.

An agreement between grantee and grantor that the
former should pay rent without any deduction for taxes
required him to pay the rent without deduction on ac-
count of the normal tax required by the federal govern-
ment to be withheld at the source.

Dissenting opinion, based on ground that the tax re-
quired to be withheld was not a tax on the particular
rent, but on the grantor's entire income, as was withheld
by the grantee as agent for the grantor; the "income"
cannot be allocated to any particular source but is the
result of numerous additions and subtractions required
to be made, and should be regarded as personal and not
to be paid by another in the absence of explicit covenant
so to do.

Case No. 322

Philadelphia City Passenger R. Company v. Philadelphia
Rapid Transit Company,

107 Atl. 329 (Penn.). Acts of 1916 and 1917.

A covenant by a lessee to pay all taxes lawfully imposed
upon the lessor or for which the lessor would be liable on
account of its earnings or profits requires the lessee to pay
the lessor's federal income and profits taxes.

194 AMERICAN INCOME TAX CASES

Case No. 323
Philadelphia & G. N. R. Company v. P. & R. R. Company,

108 Atl. 628 (Penn.) 1919. Act of 1917.

A lessee railroad company operating the property of
the lessor is bound under a covenant to pay all taxes upon
the rent payable under the lease for which the lessor would
otherwise be liable to pay the excess profits tax of the
lessor with reference to the rent received.

Case No. 324

Rensselaer & Saratoga R. Company v. Delaware and
Hudson Company,

168 App. Div. N. Y. 699 (1916). Act of 1913.

(1) A lease which provides that the lessee shall be
chargeable with all taxes upon the property demised and
upon the business done, but excepts any taxes which
might be levied against payments the lessee agreed to
make directly to stockholders of the lessor corporation
as part consideration for the use of the property does not
require the lessee to pay the lessor corporation's income
tax, where the United States authorities hold that the
payments to the lessor's stockholders are income of the
lessor itself.

(2) The income tax is not a tax imposed on the property
from which it springs.

See also 257 Fed. 555.

TAX-FREE COVENANTS 195

Case No. 325
Suter v. Jordan Marsh Company,

113 N. E. 680 (Mass.) 1916. Act of 1913.

(1) Where a person who pays rent is required by law
to pay a percentage thereon to the government in way
of tax and on behalf of the person who receives the rent,
such payment is a tax "in respect of the rent," and if he
has agreed to pay all taxes or assessments in respect of the
rent payable he is liable therefor.

(2) That the law was enacted subsequently to the con-
tract is immaterial.

Case No. 326
Urquhart v. Marion Hotel Company,

194 S. W. 1 (Ark.) 1917. Act of 1913.

A covenant made by a bond obligor, that it will pay
interest thereon "without deduction from either such
principal or interest, for any tax or taxes, which (it) may
be required to pay or retain therefrom, under any present
or future law, (it) agreeing to pay such tax or taxes"
does not render it liable to the obligee to pay the interest
in full where the federal government required it to
pay to the collector a tax of 2 % on the amount of
the interest as an income tax on the obligee, since the
taxes referred to in the covenant are taxes imposed on
the bonds and coupons as such, and it is not at all certain
that the specific payments made to the obligee will be
subject to income tax, which is a personal obligation.

196 AMEKICAN INCOME TAX CASES

Case No. 327
Van Beil v. Brogan,

65 Pa. Sup. Ct. 384 (1915). Act of 1913.

A ground rent deed which provides that the covenantor
shall pay the yearly sum agreed upon without deduction
for "any taxes" and that he shall "pay all taxes whatso-
ever that shall hereafter be levied or assessed by virtue
of any law whatever ... on the yearly rent now charged
thereon" requires the covenantor to pay the rent without
deduction on account of income tax on the grantor re-
quired by the federal government to be withheld by
obligors and paid to it.

Case No. 328
Van Rensselaer v. Dennison,

8 Barb. (N. Y.) 23 (1860). Local Act.

Where a lessee in a covenant of lease agrees to pay all
taxes which may be assessed "for and in respect of the
said premises, or any part thereof" he is not liable for
the payment of taxes levied on the rent, since there is a
distinction between the rent and the premises; the same
result would be reached if the tax assessed were an in-
come tax, and were levied on the rents as part of the
lessor's income.

Case No. 329
Boske v. Comingore,

177 U. S. 459 (1900).

A regulation concerning the conduct of internal revenue
officials and employees, regularly made by the Secretary
of the Treasury, must be held to be legally effective unless
and until its invalidity is so manifest that a court has no

PRACTICE 197

choice except to hold that the Secretary of the Treasury
has exceeded his authority and employed means not at
all appropriate to the ends specified by Congress.

Case No. 330
Boston and P. R. Corporation v. Gill,

257 Fed. 221 (D. C. D. Mass.) 1916. Act of 1909.

Where taxpayers delayed in pressing their claims for
the recovery of taxes illegally assessed as a result of an
understanding with the collectors that they should await
the decision of other pending cases but it became evident
that an agreement as to interest would not be reached
without the intervention of the court, their conduct does
not prevent them from claiming interest because of any
lack of diligence.

Case No. 331
Boughton v. United States,

12 Ct. Cls. 330 (1876).

(1) Where a party deposits money with a collector
with authority to apply it in satisfaction of a proposed
compromise, and the compromise is rejected, but the
collector applies the money to the tax and turns it into
the Treasury, the Court of Claims has jurisdiction of an
action to recover it.

(2) A pledgee cannot retain a pledge to secure other
debts or to apply to other objects than those for which
it is given; nor can the government through a collector
retain money paid him to apply to a compromise by re-
jecting the compromise and asserting the tax.

198 AMERICAN INCOME TAX CASES

Case No. 332
Cheatham v. United States,

92 U. S. 85 (1875). Revised Statutes.

A taxpayer who has appealed from an assessment, and
caused it to be set aside, another assessment being en-
tered and paid without appeal to the Commissioner, may
not bring suit to recover such payment unless his suit
was brought within the statutory period running from
date of the appeal or decision on the first assessment,
since the two assessments are not to be regarded as one,
and suits against the government must comply with all
conditions imposed by Congress.

Case No. 333
Conant v. Kinney,

162 Fed. 581 (D. C. R. I.) 1908.

A suit will lie against an internal revenue collector to
recover with interest taxes claimed to have been illegally
exacted, because such a suit is not a suit against the
United States, even where the collector is required by
law to pay and does pay into the United States Treasury
each day all sums collected by him.

Case No. 334
De Bary v. Carter,

102 Fed. 130 (C. C. A., 6th Circ.) 1900.

When a suit against a collector is instituted, for the
recovery of taxes illegally collected, in a state court, the
rules of which allow costs to the prevailing party, and
is later removed to a federal court, costs will be allowed
to the plaintiff, even though it is argued that the real

PRACTICE 199

party in interest is the United States, it being against
the rules of the court to allow costs for or against the
United States.

Case No. 334 A
Dollar Savings Bank v. United States,

86 U. S. 227 (1874). Act of 1866.

(1) Earnings carried to a contingent fund are taxable.

(2) When the Commissioner has construed a law, which
later is reenacted in identical language, such construc-
tion is not thereby adopted.

(3) The United States may maintain an action of debt
for the recovery of unassessed taxes owing.

Case No. 334 B
Emery, Bird, Thayer Realty Company v. United States,

198 Fed. 242 (D. C, W. D. Mo.) 1912. Act of 1909.

(1) A suit to recover taxes alleged to have been illegally
collected may be brought against the United States in-
stead of against the collector who collected them.

(2) Taxes on income from real estate are direct
taxes.

Case No. 335
First National Bank of Greencastle v. United States,

15 Ct. Cls. 225 (1879). Revised Statutes.

(1) The Commissioner's decision on any fact involved
in a claim for refund under R. S. 3220, 3228, within his
jurisdiction is final unless the case be one in which a
suit may be maintained against a collector (R. S. 3226,
3227).

(2) Whether or not the claim was filed before the

200 AMERICAN INCOME TAX CASES

statute of limitations had run is such a fact, and an
award may not be impeached for error in this regard.

(3) When the Commissioner makes an award, the lia-
bility of the government is fixed and the claimant is not
obliged to satisfy other officials of its correctness.

Case No. 336
In re Jacobson,

T. D. 3000 (C. C. A., 7th Circ.) 1920. Revised Statutes.

Claims of the government for unpaid taxes rank before
claims of general creditors of a bankrupt's estate, but
rank after expenses of administration thereof.

Case No. 337
Klock Produce Company v. Hartson,

212 Fed. 768 (D. C, W. D. Wash.) 1914.

A suit to recover taxes illegally collected by a collector
of internal revenue becomes a claim against the United
States only after rendition of final judgment and issuance
of a certificate of probable cause; therefore, interest on
the amount of the judgment will be allowed up to the
time review of the lower court decision is had, unless
plaintiff himself bars such interest through long delay
in presentation.

Case No. 338
Loomis v. Wattles,

266 Fed. 876 (C. C. A., 8th Circ.) 1920. Act of 1913.

(1) Where appeal was taken to the Commissioner of
Internal Revenue after assessment but before payment
of a disputed tax, and was disallowed, no further claim is

PRACTICE 201

made necessary by Section 3226, R. S., before suit may
be brought.

(2) If a "cash dividend, coupled with an increase in
authorized capital stock, and made with the expectation
that the stockholders will utilize it to purchase the stock,
is treated both by the Bureau of Internal Revenue and
the taxpayer as a stock dividend, it will be so treated by
the court, because the court has no power to assess taxes,
but must deal with assessments made by the Bureau.

(3) Stock dividends are not taxable as income.

Case No. 339
Michigan Central R. Company v. Slack,

Fed. Cas. 9527 (C. C. D. Mass.) 1873. Act of 1867.

(1) A penalty bad in part is bad in whole; thus, where
a penalty of $12,772.09 was sued for and on trial it was
shown that no more than $11,049.16 was due, the claim
for the whole penalty must fall.

(2) Where the law imposes the duty on the assessor to
determine whether a return is false or fraudulent and to
fix or refrain from fixing the penalty accordingly, a pen-
alty fixed by the assessor at the direction of the Com-
missioner is of no effect.

Case No. 340
New York Life Insurance Company v. Anderson,

257 Fed. 576 (D. C, S. D. N. Y.) 1919. Act of 1909.

(1) No adjustment should be made of income due to
the approaching maturity of bonds and other securities
purchased at a premium or discount, or on account of
market fluctuation.

(2) In an action against a collector, errors in the assess-
ment in taxpayer's favor may also be corrected, the

202 AMERICAN INCOME TAX CASES

United States, which is the real defendant, not being
affected by any estoppel which might affect the officer
making the assessment.

(3) An action against a collector is for money had and
received and only such money as in equity and good
conscience the taxpayer is entitled to may be recovered.

Case No. 341
29 Opinion Attorney General, 217,

Rendered by F. W. Lehmann, Acting, 1911. Act of 1909, and R. S. 3229,

3496

(1) Every corporation is required to render a return
of income, whether or not it has sufficient income to re-
quire the payment of a tax.

(2) In the case of failure to make returns in time, by
corporations with incomes so limited as not to be liable
to the payment of tax, liberal compromise of penalties is
a course required by the spirit and policy of the laws of
the United States.

Case No. 342

Pennsylvania Cement Company v. Bradley Contracting

Company,

D. C, S. D. N. Y. July 7, 1920. Act of 1918.

A court may not order a dividend by receivers to cred-
itors until liability of the funds in the receivers' hands
for income tax has been settled ; in the absence of consent
of the taxing authorities, this cannot be done during the
taxable year.

Practice 203

Case No. 343
Philadelphia H. & P. R. Company v. Lederer,

239 Fed. 184 (D. C, E. D. Penn.) 1917.

(1) An action against a collector of internal revenue
is in assumpsit on an implied contract, and if the collector
dies, the action survives against his personal representa-
tives.

(2) In the absence of statute, a suit for recovery of
taxes illegally paid will not lie against the successors in
office of the collector who made the illegal collection.

Case No. 344
Philadelphia H. & P. R. Company v. Lederer,

242 Fed. 492 (C. C. A., 3d Circ.) 1917.

(1) An action cannot be brought against a collector to
recover back taxes paid to his predecessor in office.

(2) The Act of Feb. 8, 1899, providing that no suit
against a government official in his capacity as such shall
abate by reason of the expiration of his term in office is not
applicable when only a claim for refund has been filed with
the collector.

Affirming 239 Fed. 184.

Case No. 345

Rensselaer and S. R. Company v. Delaware and Hudson

Company,

267 Fed. 656 (C. C. A., 2d Circ.) 1919.

There is no jurisdiction in the circuit court of appeals
over a suit brought by one railroad company against
another and the collector of internal revenue to construe
the provisions of a contract existing between the two rail-

204 AMERICAN INCOME TAX CASES

road companies relating to payment of income taxes on
dividends paid by the one company directly to the stock-
holders of the other, both companies being citizens of the
same state, unless the collector of internal revenue as co-
defendant has invoked federal jurisdiction.

Case No. 346
Ridgway v. United States,

18 Ct. Cls. 707 (1883). Revised Statutes.

(1) The Commissioner may reconsider and revoke an
allowance certified by him for refund at any time before
payment, where suit is not previously brought and there
has been no change in the head of the Bureau.

(2) Whether happening of the circumstances referred to
alter the Commissioner's power to make refunds is not
decided.

Case No. 347
Roberts v. Lowe,

236 Fed. 604 (D. C, S. D. N. Y.) 1916.

An action to recover money alleged to have been illegally
exacted lies only against the exacting collector, since his
successor could not obtain restitution from the govern-
ment. If he has resigned, the plaintiff may sue the United
States.

Gase No. 348
Savings Institution v. Blair,

116 U. S. 200 (1886).

A suit to recover taxes alleged to have been illegally
collected will not lie unless the taxpayer has first presented
his claim to the Commissioner of Internal Revenue; an

PRACTICE 205

indorsement of protest against the amount assessed made
on the check of payment or on the return filed, or the sub-
mission of an amended return with a protest as to the
amount exacted will not take the place of the "claim"
required to be made of the Secretary of the Treasury and
the Commissioner of Internal Revenue.

Case No. 349
Shaefer v. Ketchum,

Fed. Cas. 12693 (1867).

(1) A payment of internal revenue taxes is not a vol-
untary payment where both the collector and the party
paying understand at the time payment must be made or
the law will be enforced.

(2) A verbal protest noted on the back of the receipt
given by the collector is sufficient protest to avoid the rule
that taxes voluntarily paid may not be recovered.

Case No. 350
State ex rel. Wisconsin Trust Company v. Phelps,

178 N. W. 471 (1920). State Act of 1917.

An income taxpayer who claims no exemption on his
return and makes no claim concerning the allowable
exemption in the court of first instance cannot in an appel-
late court raise the question whether the statute is uncon-
stitutional in that it does not allow equal exemptions to
residents and nonresidents.

206 AMERICAN INCOME TAX CASES

Case No. 351
Stegall v. Thurman,

175 Fed. 813 (D. C, N. D. Ga.) 1910.

It is fully settled that regulations of the Secretary of the
Treasury with reference to internal revenue, and for the
government of officers of the Revenue Department, have
the force and effect of law, and such regulations should not
be disregarded or annulled unless they are plainly and
palpably inconsistent with the law.

Case No. 352
Stewart v. Barnes,

163 U. S. 466 (1894).

When a person from whom an internal revenue tax has
been exacted accepts from the government without
objection the amount collected, he may not thereafter sue
the collector for interest on the sum paid him.

Case No. 353
United States v. Acorn Roofing Company,

204 Fed. 167 (D. C, E. D. N. Y.) 1912. Act of 1909.

(1) Every corporation was required by the Act of 1909
to make return whether or not subject to tax.

(2) Where a jury has brought in a judgment for $1,000
for failure to make return, there can be no remedy on
motion to set aside, but only by appeal or compromise
with the Commissioner of Internal Revenue.

PRACTICE 207

Case No. 354
United States v. Benowitz,

262 Fed. 223 (D. C, S. D. N. 7.) 1919. Act of 1918.

Article 406, Regulations 45, as originally promulgated,
requiring that "all income tax returns must be verified
under oath or affirmation," meant that tax returns made
pursuant to the Act of 1918 be verified before any person
authorized by local law to take oaths.

Case No. 355
United States v. General Inspection & Loading Co.,

204 Fed. 667 (D. C, N. J.) 1913. Act of 1909.

The notice of assessment required to be given to tax-
payer corporations by section five may lawfully be given
by mail and a notice so sent by the collector in a franked
envelope bearing a return address, addressed to the cor-
poration at its principal office and not returned, was
presumptively received, and the burden rests on the
corporation to prove the contrary if it would avoid
penalties.

Case No. 356
United States v. Little Miami, etc., R. Company,

1 Fed. 700 (C. C, S. D. Ohio) 1880. Act of 1864.

(1) An action of debt will lie to collect income taxes due
the government and it is immaterial that no assessment
has been made.

(2) No statute of limitations bars suits for the collection
of taxes.

(3) Lease of corporate property not dissolving a corpo-
ration, it remains liable for taxes theretofore accrued.

208 AMEEICAN INCOME TAX CASES

(4) Depreciation may not be deducted from gross
income to determine net income subject to tax under the
Act of 1864.

Reversed as to point 4, 108 U. S. 277.

Case No. 357
United States v. Military Construction Company,

204 Fed. 163 (D. C, W. D. Mo.) 1913. Act of 1909.

It is the well-settled practice of the government to
require a return of income from every corporation subject
to tax measured by income, whether or not its income is
greater than exemptions and deductions allowable; this
practice not being unreasonable, it must be sustained in
the absence of direction from Congress otherwise to act.

Case No. 358
United States v. Minneapolis Threshing Machine Co.,

229 Fed. 1019 (D. C. Minn.) 1916. Act of 1909.

(1) An action of debt will lie to enable the government
to recover taxes due, whether or not they have been
assessed.

(2) No law existed at the time of this case to bar an
action by the United States to recover taxes due.

Case No. 359
United States v. Savings Bank,

104 U. S. 728 (1881) R. S. 3220 and 3228.

(1) A claim certified by the Commissioner of Internal
Revenue to be correct has the effect of an account stated,
and will form the basis of a suit against the United States
in the Court of Claims.

PRACTICE 209

(2) If a claim is filed with the Collector in the taxpayer's
district within two years, the action is not barred, because
under the regulations the Commissioner acts through
the Collector.

Case No. 361
United States v. Union Pacific R. Company,

1 Fed. 97 (C. C, E. D. Mo.) 1880. Act of 1866.

While a hen imposed by income tax laws relates back to
the time the tax was due, it attaches only to property
belonging to the taxpayer when demand for the tax was
made, and assessment is essential to the creation of such
a lien.

Case No. 362
Woolner v. United States,

13 Ct. Cls. 355 (1877). Revised Statutes.

(1) The Commissioner of Internal Revenue has final
executive authority in the matter of refunds of taxes
claimed to have been erroneously collected.

(2) Where he has in a case within the scope of his
authority and jurisdiction ordered a refund the courts
cannot inquire into the sufficiency of the evidence before
him.

Case No. 363
Sybrandt v. United States,

19 Ct. Cls. 461 (1884). Revised Statutes.

Under Section 3220, R. S., the Commissioner of Internal
Revenue is the final authority on the approval or rejection
of claims for refund of taxes illegally collected, and neither

210 AMERICAN INCOME TAX CASES

accounting officers or the courts can review his judgment
where it is unimpeached for fraud or apparent mistake.

Case No. 364
Dodge v. Brady,

240 U. S. 122 (1916). Act of 1913.

(1) Where a bill to enjoin collection of a tax has been
amended, after denial of motion for preliminary injunc-
tion, to show that claim for abatement of the disputed tax
has been refused and to make prayer for recovery of tax
paid, the court may take jurisdiction, even though the bill
does not allege payment of the taxes, claim for and denial
of refund thereof, since the Commissioner has by his
refusal to abate the tax passed on the merits.

(2) The following provisions of the act held not invalid:

(a) That provision subjecting stockholders in cer-
tain instances when computing surtaxes to liabil-
ity for profits of corporations not divided or dis-
tributed.

(b) That provision vesting the Secretary of the
Treasury with an arbitrary power of determining
without notice and without hearing whether a
corporation has accumulated a greater undivided
surplus than is reasonable for the needs of the
business.

(c) That provision permitting corporations to ac-
cumulate and withhold from surtax taxation such
gains as may be reasonable for the needs of the
business, without granting a like permission to
individuals and partnerships.

(d) The provisions levying graduated surtaxes on
individuals but not on corporations.

EN JOINDER OF TAXES 211

Case No. 366
Dodge v. Osborn,

240 U. S. 118 (1916). Act of 1913.

(1) The provisions of R. S. 3224, 3220, 3226, 3227, are
applicable to cases involving the enjoinder or recovery of
taxes assessed or paid under the Act of 1913.

(2) Conceding for argument's sake the principle that
where independent equities are present, a bill will lie to
enjoin a federal tax, such a bill will not lie where the
ground alleged is that the tax is unconstitutional.

(3) Or on the ground that equity has jurisdiction to
avoid a multiplicity of similar suits by other taxpayers in
like positions or because the tax claim was a lien and
therefore a cloud on the title to property.

(4) There is no violation of due process of law in the
requirement that before suit for the recovery of taxes
alleged to have been illegally collected can be maintained
an appeal must be taken to the Commissioner of Internal
Revenue.

Case No. 366
Gouge v. Hart,

250 Fed. 802 (D. C, W. D. Va.) 1917. Revised Statutes.

(1) In Section 3224, R. S., providing that no suit for the
purpose of restraining the assessment or collection of any
tax shall be maintained in any court, the word "restrain-
ing" was intended in the broad popular sense of hindering
or impeding as well as of prohibiting or staying, and not in
its narrowest technical sense as applicable only to suits
praying for restraining orders and injunctions.

(2) Thus a suit to annul and set aside a sale of land
made to enforce the collection of a tax will not be enter-
tained.

212 AMERICAN INCOME TAX CASES

(3) The provisions of the section cannot be waived by
any officer of the government.

Case No. 367
Kohlhammer v. Smietanka,

239 Fed. 408 (D. C, N. D. 111.) 1917.

(1) Where a taxing act provides that penalties shall be
assessed and collected as part of the tax, and as other
penalties under revenue laws are collected, Sec. 3224, R. S.,
prohibiting the injunction of the assessment or collection
of any tax applies as well to forbid the injunction of the
assessment and collection of such penalties.

(2) It is not a defense that punishment by way of fine
and imprisonment for failure to pay the tax is provided,
since such punishment does not satisfy the tax obligation,
including penalties.

Case No. 368

Markle v. Kirkendall,
267 Fed. 498 (1920). Revised Statutes.

Section 3224, R. S., is an absolute bar to a bill to restrain
the seizure of property for failure to pay taxes unless it is
entirely clear that the property threatened with seizure or
the person against whom the assessment is made is not
liable for the tax asserted; and where the question is
doubtful, as where the question is whether a business is
conducted as a partnership or corporation, the injunction
will not be granted.

CONDITIONS FOK SUITS 213

Case No. 369
Straus v. Abrast Realty Company,

200 Fed. 327 (D. C, E. D. N. Y.) 1912. Act of 1909.

The provisions of R. S. 3224 prevent the maintenance
of a bill in equity by a stockholder who seeks to enjoin the
corporation of which he is a stockholder from voluntarily
paying a tax assessed by the Commissioner of Internal
Revenue.

Case No. 370
Camp Bird, Ltd., v. Howbert,

249 Fed. 27 (C. C. A., 8th Circ.) 1918. Act of 1909.

(1) The only limitation on the power of Congress to
impose excise taxes is that they be geographically uniform.

(2) A statute (Section 3225, R. S.) which provides that
no tax paid shall be refunded unless it is proved that the
return was not "false nor fraudulent" includes and bars a
refund when the return was unintentionally false.

(3) Sec. 3225, R. S., as it read in 1918 was applicable to
taxes paid under the Act of 1909.

(4) That it was later amended prospectively is im-
material.

Certiorari denied 247 U. S. 509; reversed upon confession
of error, 248 U. S. 590.

Case No. 371
Camp Bird, Ltd., v. Howbert,

262 Fed. 114 (C. C. A., 8th Circ.) 1919. Act of 1909.

(1) Upon remand from the Supreme Court, after con-
fession of error by the Attorney General, held, the bar
imposed by Section 3225 was not applicable.

214 AMERICAN INCOME TAX CASES

(2) If a tax is judicially deemed to be recoverable, it
follows that any penalty and interest collected therewith
are likewise recoverable.

(3) A mining corporation was entitled under the Act of
1909 to deduct depreciation on equipment, but not on ore
body.

Certiorari denied 252 U. S. 579.

Case No. 372

Rock Island, Arkansas and Louisiana R. Company v.

United States,

Supreme Court, October, 1920. Revised Statutes.

Because of R. S. 3226, 3228, a suit for the recovery of
taxes from the United States will not lie until a claim for
refund thereof, after payment, has been made and re-
jected, or six months have elapsed without action by the
Commissioner, even though the merits of the case have
been passed on and the taxpayer's contentions rejected by
the Commissioner when acting on a claim for abatement,
since men must turn square corners when bringing suit
against the government, and furthermore it is possible the
Commissioner might change his mind when the con-
troversy is before him a second time.

Case No. 373
State Line and S. R. Company v. Davis,

228 Fed. 246 (D. C, W. D. Penn.) 1915.

(1) Where a claim for refund of a corporate excise tax
paid under protest was before the Commissioner within
the time required and rejected by him within two years
before suit was brought, the requirements of R. S. 3226,
3227 and 3228 are satisfied.

' CONDITIONS FOR SUITS 215

(2) In a suit for illegal taxes against a collector interest
is recoverable without specific statutory authority.

Case No, 374

New York Mail and Transportation Company v. Ander-
son,

234 Fed. 590 (C. C. A., 3d Circ.) 1916. Act of 1909; Revised Statutes.

(1) The Statute of Limitations contained in Sections
3226 and 3228, R. S., runs from the date of payment of
the tax imposed; the limitation imposed by Section 3227
runs from the date of rejection by the Commissioner, or
the lapse of six months from time of filing claim, whichever
occurs first.

(2) A plaintiff recovering against a collector for the
repayment of a tax illegally exacted is entitled to have the
judgment state that it is with interest, even though the
action is in effect against the United States.

Case No. 375
Public Service Railway Company v. Herold,

229 Fed. 902 (C. C. A., 3d Circ.) 1916. Revised Statutes.

A suit against a collector of internal revenue, brought
pursuant to federal statutory provisions, must, under
Sections 3227, 3228, R. S., be brought after appeal to
the Commissioner for refund, which appeal must be
made within two years from time of payment of the
tax. Whether this condition can be obviated by suing
the collector as an individual who has tortiously acted,
quaere.

216 AMERICAN INCOME TAX CASES

Case No. 376
16 Opinion Attorney General, 248,

Rendered by Charles Devens, 1879. Revised Statutes.

(1) The Commissioner may not set off an amount of
tax illegally collected, but which is not refundable because
of the lapse of the period of limitations, against another
tax rightfully due to the United States.

(2) Nor may he under his power to compromise cases
arising out of the revenue laws (R. S. 3229) voluntarily
relinquish a part of a tax lawfully assessed upon and due
from a solvent person or corporation.

Case No. 377
14 Opinion Attorney General, 615,

Rendered by George H. Williams, 1873. Act of 1872.

(1) An application for refund of taxes alleged to have
been illegally collected, not in the form prescribed, is
sufficient on which to base an amendment, and when
amended the perfected "claim" relates back in such man=
ner as to defeat the Statute of Limitations, when the
application filed first was in time but the claim in proper
form was not.

(2) But delivery of a claim to a collector or other local
officer is not a presentation to the Commissioner within
the meaning of the Act (R. S. 3228).

COMPROMISES 217

Case No. 378
Savings Bank of Pittsburg v. United States,

16 Ct. Cls. 335 (1880). Revised Statutes.

The provisions of Section 3228 are complied with if a
claim for refund is presented to the collector of internal
revenue in the district in which the claimant resides.

Case No. 379
23 Opinion Attorney General, 507,

Rendered by James M. Beck, Acting, 1901. Revised Statutes.

(1) Under R. S. 3229 the Secretary of the Treasury
may not compromise a case being pressed against the
United States, as the section refers only to suits com-
menced by the government.

(2) R. S. 3469 authorizes the compromise of claims
"in favor of the United States," but not otherwise.

Case No. 380
31 Opinion Attorney General, 459,

Rendered by A. Mitchell Palmer, 1919. Revised Statutes.

The Commissioner of Internal Revenue with the ad-
vice and consent of the Secretary of the Treasury is
authorized to compromise claims for penalties imposed
and interest charged against taxpayers for delinquencies
under the income tax laws in all cases where in his judg-
ment such compromises are for the interest of the United
States, and whether or not the taxpayer is solvent.

218 AMERICAN INCOME TAX CASES

Case No. 381
Rau v. United States,

260 Fed. 131 (C. C. A., 2d Circ.) 1919. Act of 1917.

(1) The payment in good faith of all tax due, together
with an amount in compromise of penalty, to a revenue
officer who promised immunity from further punishment
in a criminal proceeding is a compromise within Sec-
tion 3229, R. S., and is a bar to criminal prosecution.

(2) Retention in the Treasury of the money collected is
evidence of the compromise.

(3) Whether a compromise was in fact effected is a
question for a jury.

(4) Proceeds of embezzlement are not income.

Case No. 382
Willingham v. United States,

208 Fed. 137 (C. C. A., 6th Circ.) 1913.

Where a deputy collector finding accused selling liquor
without having paid the tax agreed that if he would pay
the tax and penalty the collector would not institute
criminal proceedings, whereupon payment was made, a
presumption that the offer was accepted will be indulged
in, and prosecution barred, where the money was turned
over to, and retained by, the Treasury.

Dissenting opinion on the ground that the law requires
compromises to be made by the Commissioner of Internal
Revenue with the advice and consent of the Secretary of
the Treasury, and that a deputy collector has no authority
so to do.

MISCELLANEOUS 219

Case No. 383
Bailey v. Railroad,

89 U. S. 604 (1874). Act of 1864.

(1) An act levying a tax on "dividends in scrip"
reaches a distribution by a corporation of paper termed
"interest certificates" reciting that A. B. "being the
holder of shares of capital stock of the com-
pany, was entitled to $ payable ratably with the

other like certificates, at the pleasure of the company out
of its future earnings, with dividends thereon at the same
rates and times as dividends should be paid upon the
capital stock of the company," and being transferable on
the books of the company, like capital stock.

(2) When a corporation liable for tax merges into a new
corporation under a statute requiring that a dissolving
corporation shall survive for the purpose of meeting ob-
ligations theretofore existing, that all such debts shall
attach to the new corporation, and that all hens shall be
preserved unimpaired, the new corporation is liable to
pay the assessment made after the consolidation on
account of the dividend declaration made theretofore.

(3) If a corporation has in fact had a hearing before the
executive officers charged with collection of taxes, a
recovery of the tax paid cannot be had in a judicial pro-
ceeding merely because the collector in enforcing payment
of the tax had not conformed with certain proceedings of
form intended to secure a full hearing to taxpayers.

Rehearing 106 U. S. 109.

220 AMERICAN INCOME TAX CASES

Case No. 384
Blalock v. Georgia R. & E. Company,

228 Fed. 296 (C. C. A., 6th Circ.) 1915. Act of 1909.

A corporation which did business for three months
during the year 1912 is nevertheless subject to a tax
measured by its income from all sources during the entire
year, and the question of inequality, if any, which results
as between it and other corporations is not for the courts
but for the Congress.

Case No. 385
Bowen v. Commonwealth,

101 S. E. 232 (Va.) 1919.

Whether or not an individual is liable to income tax
imposed on residents by the state of Virginia depends
upon whether he is domiciled in that state.

Case No. 386
Cary v. Savings Union,

89 U. S. 38 (1874). Civil War Acts.

When an income tax statute differentiates in the mode
and rate of tax applicable to dividends, and to interest, a
payment by a savings bank to its depositors, according to
the amount of their deposits, of the interest which the
bank has earned on the funds so deposited with it, is to be
treated as a "dividend" and not as "interest."

Affirming Fed. Cas. 12317.

MISCELLANEOUS 221

Case No. 387
Dunn v. Trefry,

260 Fed. 147 (C. C. A., 1st Circ.) 1919. Mass. State Act of 1915.

When an act taxes "income . . . received by any
inhabitant of this commonwealth," the primary question
as to a given person's liability is to be determined by the
rules of domicile.

To the same effect, Agassiz v. Trefry, 260 Fed. 226.

Case No. 388

Hubbard v. Brainard,
36 Conn. 563 (1869). Act of 1864.

(1) The Act imposed a tax on stockholders of corpo-
rations with respect to that part of the net earnings of the
corporations which had been ascertained to belong to
them, whether or not actually distributed, and the tax
attaches in a case where the net profits had been deter-
mined and divided.

(2) But the tax does not in the absence of fraud reach
so-called undistributed profits which have been in fact ex-
pended by the corporation during the year for machinery
and raw material, and in the payment of debts, in the
ordinary course of business, since these are not a per-
manent location of funds by way of investment for the
purpose of rental or income.

(3) The fact that in 1866 a law was enacted prohibit-
ing suit for any tax claimed to have been illegally col-
lected unless an appeal was first had to the Commissioner
of Internal Revenue does not prevent suit for the recovery
of a tax illegally collected before then, because (a) the
Act of Congress was prospective only; (b) it could operate
no further than to exclude maintenance of a suit in United

222 AMEBICAN INCOME TAX CASES

States courts, and (c) under the common law plaintiff
had a vested right to recover from the Collector moneys
illegally taken. It is immaterial that suit for the tax had
been dismissed in a federal court because of the act men-
tioned.

(4) Suit for a tax claimed to have been illegally collected
will lie against a Collector of Internal Revenue in a state
court if the court has jurisdiction of both parties.

Reversed in part 79 U. S. 1.

Case No. 389
Morrill v. Jones,

106 U. S. 466 (1882).

When a statute authorizes the entrance duty free of
animals imported for breeding, the Secretary of the Treas-
ury may not require by regulation that such animals be
of superior stock, even though the statute authorizes the
promulgation of "such regulations as he may prescribe."

Case No. 390
New Orleans v. Fassman & Yancey,

14 La. Ann. 865 (1859). Local Act of 1856.

A tax upon income imposed by an act which defines
income as "moneys, salaries, wages, pay, commission,
brokerage and fees received in compensation of services
or labor rendered and all revenues and dividends received
upon stocks in money corporations not taxable," does
not reach income derived from the operation of a cotton
press, since the press is already taxed as property, and
to tax the income therefrom would be double taxation
and repugnant to the intention of the legislature.

MISCELLANEOUS 223

Case No. 391
Opinion Attorney General,

T. D. 3044, rendered by A. Mitchell Palmer, 1920. Act of 1918.

(1) A corporation with a fiscal year ending September
30 may not, in 1920, change its fiscal year in order to bring
it within Section 204 of the Act of 1918 since the method
of accounting, and the tax liability, were accomplished
facts.

(2) Contracts for the purchase of material may not
properly be included in inventory taken at the end of the
year for the purpose of ascertaining net income; therefore,
such a contract may not be the basis for an inventory
loss under Section 234 (a) (14).

Case No. 392
28 Opinion Attorney General, 241,

Rendered by George W. Wickersham, 1910. Act of 1909.

(1) Any corporation engaged in business after August
5, 1909, is amenable to the provisions of the Act of 1909.

(2) If a corporation has dissolved and distributed its
assets prior to assessment, no lien can attach to such
assets, on account of taxes accrued against the corporation.

(3) But the government may follow the assets of a dis-
solved corporation into the hands of any person not a
bona fide purchaser, and collect the taxes accrued against
such corporation from such persons, in the same manner
as that by which any other creditor might obtain satis-
faction of his debt.

224 AMERICAN INCOME TAX CASES

Case No. 393
Opinion Attorney General,

Op. Ag. 2, Income Tax Rulings, rendered by A. Mitchell Palmer, 1920.

Act of 1918.

(1) The Alien Property Custodian is not a trustee in
such sense as to require him to make returns of income
of persons whose property he holds with respect to income
accruing from such property.

(2) When property so held including accrued income
is returned to its owners, the Secretary of the Treasury
may ascertain the amount of tax due to the government
and require payment before releasing moneys deposited
by the Custodian for the alien with the Treasury Depart-
ment.

Case No. 394

Pacific Insurance Company v. Soule,
74 U. S. 433 (1868). Act of 1866.

(1) When a person received taxable income in coined
money, Section 9 of the Act denied the right to make
return of the amounts received in coin, and pay in cur-
rency the amount of the tax due, and its return must be
on an equal basis with that of other taxpayers receiving
their income in currency.

(2) The income tax laid is not a direct tax, but is a
duty or excise, and need not be apportioned.

MISCELLANEOUS 225

Case No. 395

Reynolds v. Williams,
Fed. Cas. 11734 (C. C. D. Ind.) 1867. Civil War Acts.

A corporation which pursuant to a scheme of reorgani-
zation takes over the assets of another corporation, among
which is a fund consisting of United States bonds, which
it agrees to hold in trust for the stockholders of the first
corporation, receives no taxable income, as a result thereof,
since the law requires a return of a trustee only of gains
to the beneficiaries and here the beneficiaries have an
equitable interest in the property taken, which is no more
and no less than they had before.

Case No. 396

Roberts v. Anderson,
226 Fed. 7 (C. C. A., 2d Circ.) 1916. Act of 1909.

The United States Express Company, although organ-
ized as at common law derives from New York state law
the statutory privilege of suing and being sued in the
names of its officers, and this is a sufficient cause to ren-
der it liable to pay excise tax as having derived from
some law of the United States or a state an advantage not
found at common law.

Case No. 397
San Francisco Savings and Loan Society v. Cary,

Fed. Cas. 12317 (C. C, Calif.) 1873. Act of 1866.

(1) If an appeal is taken from an illegal assessment and
decision against such appeal is had, whereupon the tax
is paid, a further appeal is not prerequisite to suit.

226 AMERICAN INCOME TAX CASES

(2) A savings institution which has a capital and re-
serve fund as security for deposits, and loans the capital,
reserve and deposits, dividing part of the profits at the
end of the year among the depositors in accordance with
the size and age of the accounts, pays "dividends" to its
depositors within the meaning of the Act, and must pay
the tax with respect thereto.

Affirmed 89 U. S. 38.

Case No. 398
United States v. Chicago & Alton Railroad Company,

D. C, N. D. 111., Jan. 6, 1920. Act of 1909.

The Commissioner of Internal Revenue has no authority
to require rules of accounting to ascertain the net income
of a railroad company different from the rules prescribed
for such purpose by the Interstate Commerce Commission
acting under authority of law conferred by Congress.

Case No. 399
United States v. Isham,

84 U. S. 496 (1873).

A device carried out by means of legal forms is subject
to no legal censure, though it may be a device to avoid
the revenue acts, and though its operation may have the
effect of avoiding them. Thus where the law requires a
stamp on checks above $10 there is no fraud when an
individual owing $20 pays his debt with two checks for
$10 each.

MISCELLANEOUS 227

Case No. 400
United States v. John J. McHatton,

T. D. 3043 (D. C. Mont.) 1920. Act of 1916.

(1) An income tax may be and was imposed by retro-
spective law.

(2) A tax is not a debt and the government is not a
creditor in a strict sense. The obligation on a taxpayer
is of a higher nature than a debt.

(3) Distributees without consideration of corporate
assets, such as stockholders in the case of corporate dis-
solution, are liable to the extent of the value of the dis-
tribution to them for corporate tax due to the United
States, under the trust fund doctrine.

Case No. 401
United States v. Pittaro,

T. D. 2874 (D. C, N. D. Ohio) 1919. Act of 1918.

(1) It is the mandatory duty of collectors of internal
revenue to issue receipts for taxes collected when requested
so to do by the taxpayer.

(2) Such receipts are documents required by provisions
of internal revenue laws and regulations and it is there-
fore an offense falsely to simulate such receipts.

(3) It is no matter whether the simulation is made
on a regular blank, falsely signed, or whether the blank
itself is simulated.

(4) Conversation had between the defendant and those
for whom the false receipt was procured is immaterial,
and it is likewise immaterial whether such persons were
in fact liable for tax.

228 AMERICAN INCOME TAX CASES

Case No. 402
United States v. Turner,

Fed. Cas. 16648 (1873).

The lien which attaches on property under the federal
income tax act of July 13, 1866, to secure payment of a
tax, is valid as against innocent purchasers for value.

APPENDIX

CONTAINING FEDERAL INCOME TAX LAWS OF
1909, 1913, 1916, 1917 & 1918

ACT OF 1909

(Approved Aug. 5, 1909.)

Sec. 38. That every corporation, joint-stock company or
association, organized for profit and having a capital stock
represented by shares, and every insurance company, now or
hereafter organized under the laws of the United States or of any
State or Territory of the United States or under the acts of
Congress applicable to Alaska or the District of Columbia, or
now or hereafter organized under the laws of any foreign country
and engaged in business in any State or Territory of the United
States or in Alaska or in the District of Columbia, shall be
subject to pay annually a special excise tax with respect to the
carrying on or doing business by such corporation, joint-stock
company or association, or insurance company, equivalent to
one per centum upon the entire net income over and above five
thousand dollars received by it from all sources during such year,
exclusive of amounts received by it as dividends upon stock of
other corporations, joint-stock companies or associations, or
insurance companies, subject to the tax hereby imposed; or if
organized under the laws of any foreign country, upon the
amount of net income over and above five thousand dollars
received by it from business transacted and capital invested
within the United States and its Territories, Alaska, and the
District of Columbia during such year, exclusive of amounts so
received by it as dividends upon stock of other corporations,
joint-stock companies or associations, or insurance companies,
subject to the tax hereby imposed: Provided, however, That
nothing in this section contained shall apply to labor, agricul-
tural or horticultural organizations, or to fraternal beneficiary
societies, orders, or associations operating under the lodge sys-
tem, and providing for the payment of life, sick, accident, and
other benefits to the members of such societies, orders or asso-
ciations, and dependents of such members, nor to domestic
building and loan associations, organized and operated exclu-

231

232 act of 1909

sively for the mutual benefit of their members, nor to any cor-
poration or association organized and operated exclusively for
religious, charitable, or educational purposes, no part of the net
income of which inures to the benefit of any private stockholder
or individual.

Second. Such net income shall be ascertained by deducting
from the gross amount of the income of such corporation, joint-
stock company or association, or insurance company, received
within the year from all sources, (first) all the ordinary and
necessary expenses actually paid within the year out of income
in the maintenance and operation of its business and properties,
including all charges such as rentals or franchise payments,
required to be made as a condition to the continued use or
possession of property; (second) all losses actually sustained
within the year and not compensated by insurance or otherwise,
including a reasonable allowance for depreciation of property,
if any, and in the case of insurance companies the sums other
than dividends, paid within the year on policy and annuity
contracts and the net addition, if any, required by law to be
made within the year to reserve funds; (third) interest actually
paid within the year on its bonded or other indebtedness to an
amount of such bonded and other indebtedness not exceeding
the paid-up capital stock of such corporation, joint-stock com-
pany or association, or insurance company, outstanding at the
close of the year, and in the case of a bank, banking association
or trust company, all interest actually paid by it within the year
on deposits; (fourth) all sums paid by it within the year for taxes
imposed under the authority of the United States or of any
State or Territory thereof, or imposed by the government of any
foreign country as a condition to carry on business therein;
(fifth) all amounts received by it within the year as dividends
upon stock of other corporations, joint-stock companies or
associations, or insurance companies, subject to the tax hereby
imposed: Provided, That in the case of a corporation, joint-stock
company or association, or insurance company, organized under
the laws of a foreign country, such net income shall be ascer-
tained by deducting from the gross amount of its income re-
ceived within the year from business transacted and capital

act of 1909 233

invested within the United States and any of its Territories,
Alaska, and the District of Columbia, (first) all the ordinary
and necessary expenses actually paid within the year out of
earnings in the maintenance and operation of its business and
property within the United States and its Territories, Alaska,
and the District of Columbia, including all charges such as
rentals or franchise payments required to be made as a condition
to the continued use or possession of property; (second) all losses
actually sustained within the year in business conducted by it
within the United States or its Territories, Alaska, or the Dis-
trict of Columbia not compensated by insurance or otherwise,
including a reasonable allowance for depreciation of property,
if any, and in the case of insurance companies the sums other
than dividends, paid within the year on policy and annuity
contracts and the net addition, if any, required by law to be
made within the year to reserve funds; (third) interest actually
paid within the year on its bonded or other indebtedness to an
amount of such bonded and other indebtedness, not exceeding
the proportion of its paid-up capital stock outstanding at the
close of the year which the gross amount of its income for the
year from business transacted and capital invested within the
United States and any of its Territories, Alaska, and the District
of Columbia bears to the gross amount of its income derived
from all sources within and without the United States; (fourth)
the sums paid by it within the year for taxes imposed under the
authority of the United States or of any State or Territory
thereof; (fifth) all amounts received by it within the year as
dividends upon stock of other corporations, joint-stock com-
panies or associations, and insurance compaaies, subject to the
tax hereby imposed. In the case of assessment insurance
companies the actual deposit of sums with State or Territorial
officers, pursuant to law, as additions to guaranty or reserve
funds shall be treated as being payments required by law to
reserve funds.

Third. There shall be deducted from the amount of the net
income of each of such corporations, joint-stock companies or
associations, or insurance companies, ascertained as provided in
the foregoing paragraphs of this section, the sum of five thou-

234 act of 1909

sand dollars, and said tax shall be computed upon the remainder
of said net income of such corporation, joint-stock company or ,
association, or insurance company, for the year ending Decem-
ber thirty-first, nineteen hundred and nine, and for each calendar
year thereafter; and on or before the first day of March, nineteen
hundred and ten, and the first day of March in each year there-
after, a true and accurate return under oath or affirmation of its
president, vice-president, or other principal officer, and its
treasurer or assistant treasurer, shall be made by each of the
corporations, joint-stock companies or associations, and in-
surance companies, subject to the tax imposed by this section,
to the collector of internal revenue for the district in which such
corporation, joint-stock company or association, or insurance
company has its principal place of business, or, in the case of a
corporation, joint-stock company or association, or insurance
company, organized under the laws of a foreign country, in the
place where its principal business is carried on within the United
States, in such form as the Commissioner of Internal Revenue,
with the approval of the Secretary of the Treasury, shall pre-
scribe, setting forth (first) the total amount of the paid-up
capital stock of such corporation, joint-stock company or asso-
ciation, or insurance company, outstanding at the close of the
year; (second) the total amount of the bonded and other in-
debtedness of such corporation, joint-stock company or associa-
tion, or insurance company at the close of the year; (third) the
gross amount of the income of such corporation, joint-stock
company or association, or insurance company received during
such year from all sources, and if organized under the laws of a
foreign country the gross amount of its income received within
the year from business transacted and capital invested within
the United States and any of its Territories, Alaska, and the
District of Columbia; also the amount received by such corpora-
tion, joint-stock company or association, or insurance company
within the year by way of dividends upon stock of other corpo-
rations, joint-stock companies or associations, or insurance
companies, subject to the tax imposed by this section; (fourth)
the total amount of all the ordinary and necessary expenses
actually paid out of earnings in the maintenance and operation

act of 1909 235

of the business and properties of such corporation, joint-stock
company or association, or insurance company within the year,
stating separately all charges such as rentals or franchise pay-
ments required to be made as a condition to the continued use or
possession of property, and if organized under the laws of a
foreign country the amount so paid in the maintenance and
operation of its business within the United States and its Terri-
tories, Alaska, and the District of Columbia; (fifth) the total
amount of all losses actually sustained during the year and not
compensated by insurance or otherwise, stating separately any
amounts allowed for depreciation of property, and in the case of
insurance companies the sums other than dividends, paid within
the year on policy and annuity contracts and the net addition, if
any, required by law to be made within the year to reserve funds;
and in the case of a corporation, joint-stock company or associa-
tion, or insurance company, organized under the laws of a
foreign country, all losses actually sustained by it during the
year in business conducted by it within the United States or its
Territories, Alaska, and the District of Columbia, not compen-
sated by insurance or otherwise, stating separately any amounts
allowed for depreciation of property, and in the case of insurance
companies the sums other than dividends, paid within the year
on policy and annuity contracts and the net addition, if any,
required by law to be made within the year to reserve fund;
(sixth) the amount of interest actually paid within the year on
its bonded or other indebtedness to an amount of such bonded
and other indebtedness not exceeding the paid-up capital stock
of such corporation, joint-stock company or association, or
insurance company, outstanding at the close of the year, and in
the case of a bank, banking association, or trust company,
stating separately all interest paid by it within the year on
deposits; or in case of a corporation, joint-stock company or
association, or insurance company, organized under the laws of a
foreign country, interest so paid on its bonded or other indebted-
ness to an amount of such bonded and other indebtedness not
exceeding the proportion of its paid-up capital stock outstanding
at the close of the year, which the gross amount of its income for
the year from business transacted and capital invested within

236 act of 1909

the United States and any of its Territories, Alaska, and the
District of Columbia, bears to the gross amount of its income
derived from all sources within and without the United States;
(seventh) the amount paid by it within the year for taxes im-
posed under the authority of the United States or any State or
Territory thereof, and separately the amount so paid by it for
taxes imposed by the government of any foreign country as a
condition to carrying on business therein; (eighth) the net in-
come of such corporation, joint-stock company or association, or
insurance company, after making the deductions in this section
authorized. All such returns shall as received be transmitted
forthwith by the collector to the Commissioner of Internal
Revenue.

Fourth. Whenever evidence shall be produced before the
Commissioner of Internal Revenue which in the opinion of the
commissioner justifies the belief that the return made by any
corporation, joint-stock company or association, or insurance
company is incorrect, or whenever any collector shall report to
the Commissioner of Internal Revenue that any corporation,
joint-stock company or association, or insurance company has
failed to make a return as required by law, the Commissioner of
Internal Revenue may require from the corporation, joint-stock
company or association, or insurance company making such
return, such further information with reference to its capital,
income, losses, and expenditures as he may deem expedient;
and the Commissioner of Internal Revenue, for the purpose of
ascertaining the correctness of such return or for the purpose of
making a return where none has been made, is hereby author-
ized, by any regularly appointed revenue agent specially desig-
nated by him for that purpose, to examine any books and papers
bearing upon the matters required to be included in the return
of such corporation, joint-stock company or association, or in-
surance company, and to require the attendance of any officer or
employee of such corporation, joint-stock company or associa-
tion, or insurance company, and to take his testimony with
reference to the matter required by law to be included in such
return, with power to administer oaths to such person or persons;
and the Commissioner of Internal Revenue may also invoke the

act of 1909 237

aid of any court of the United States having jurisdiction to
require the attendance of such officers or employees and the
production of such books and papers. Upon the information so
acquired the Commissioner of Internal Revenue may amend any
return or make a return where none has been made. All pro-
ceedings taken by the Commissioner of Internal Revenue under
the provisions of this section shall be subject to the approval of
the Secretary of the Treasury.

Fifth. All returns shall be retained by the Commissioner of
Internal Revenue, who shall make assessments thereon; and in
case of any return made with false or fraudulent intent, he shall
add one hundred per centum of such tax, and in case of a refusal
or neglect to make a return or to verify the same as aforesaid he
shall add fifty per centum of such tax. In case of neglect oc-
casioned by the sickness or absence of an officer of such corpora-
tion, joint-stock company or association, or insurance company,
required to make said return, or for other sufficient reason, the
collector may allow such further time for making and delivering
such return as he may deem necessary, not exceeding thirty
days. The amount so added to the tax shall be collected at the
same time and in the same manner as the tax originally assessed,
unless the refusal, neglect, or falsity is discovered after the date
for payment of said taxes, in which case the amount so added
shall be paid by the delinquent corporation, joint-stock com-
pany or association, or insurance company, immediately upon
notice given by the collector. All assessments shall be made and
the several corporations, joint-stock companies or associations,
or insurance companies, shall be notified of the amount for which
they are respectively liable on or before the first day of June of
each successive year, and said assessments shall be paid on or
before the thirtieth day of June, except in cases of refusal or
neglect to make such return, and in cases of false or fraudulent
returns, in which cases the Commissioner of Internal Revenue
shall, upon the discovery thereof, at any time within three years
after said return is due, make a return upon information ob-
tained as above provided for, and the assessment made by the
Commissioner of Internal Revenue thereon shall be paid by such
corporation, joint-stock company or association, or insurance

238 act of 1909

company immediately upon notification of the amount of such
assessment; and to any sum or sums due and unpaid after the
thirtieth day of June in any year, and for ten days after notice
and demand thereof by the collector, there shall be added the
sum of five per centum on the amount of tax unpaid and interest
at the rate of one per centum per month upon said tax from the
time the same becomes due.

Sixth. When the assessment shall be made, as provided in this
section, the returns, together with any corrections thereof which
may have been made by the commissioner, shall be filed in the
office of the Commissioner of Internal Revenue and shall consti-
tute public records and be open to inspection as such.

Seventh. It shall be unlawful for any collector, deputy col-
lector, agent, clerk, or other officer or employee of the United
States to divulge or make known in any manner whatever not
provided by law to any person any information obtained by him
in the discharge of his official duty, or to divulge or make known
in any manner not provided by law any document received,
evidence taken, or report made under this section except upon
the special direction of the President; and any offense against
the foregoing provision shall be a misdeamenor and be punished
by a fine not exceeding one thousand dollars, or by imprison-
ment not exceeding one year, or both, at the discretion of
the court.

Eighth. If any of the corporations, joint-stock companies or
associations, or insurance companies aforesaid, shall refuse or
neglect to make a return at the time or times hereinbefore
specified in each year, or shall render a false or fraudulent
return, such corporation, joint stock company or association, or
insurance company shall be liable to a penalty of not less than
one thousand dollars and not exceeding ten thousand dollars.

Any person authorized by law to make, render, sign, or verify
any return, who makes any false or fraudulent return, or state-
ment, with intent to defeat or evade the assessment required by
this section to be made, shall be guilty of a misdemeanor, and
shall be fined not exceeding one thousand dollars or be impris-
oned not exceeding one year, or both, at the discretion of the
court, with the costs of prosecution.

act of 1909 239

All laws relating to the collection, remission, and refund of
internal-revenue taxes, so far as applicable to and not inconsist-
ent with the provisions of this section, are hereby extended and
made applicable to the tax imposed by this section.

Jurisdiction is hereby conferred upon the circuit and district
courts of the United States for the district within which any
person summoned under this section to appear to testify or to
produce books as aforesaid, shall reside, to compel such atten-
dance, production of books, and testimony by appropriate
process.

ACT OF 1913

(Approved Oct. 3, 1913.)

A. Subdivision 1. That there shall be levied, assessed, col-
lected and paid annually upon the entire net income arising
or accruing from all sources in the preceding calendar year to
every citizen of the United States, whether residing at home
or abroad, and to every person residing in the United States,
though not a citizen thereof, a tax of 1 per centum per annum
upon such income, except as hereinafter provided; and a like
tax shall be assessed, levied, collected, and paid annually upon
the entire net income from all property owned and of every
business, trade, or profession carried on in the United States
by persons residing elsewhere.

Subdivision 2. In addition to the income tax provided under
this section (herein referred to as the normal income tax) there
shall be levied, assessed, and collected upon the net income of
every individual an additional income tax (herein referred to as
the additional tax) of 1 per centum per annum upon the amount
by which the total net income exceeds $20,000 and does not
exceed $50,000, and 2 per centum per annum upon the amount
by which the total net income exceeds $50,000 and does not
exceed $75,000, 3 per centum per annum upon the amount by
which the total net income exceeds $75,000 and does not exceed
$100,000, 4 per centum per annum upon the amount by which
the total net income exceeds $100,000 and does not exceed
$250,000, 5 per centum per annum upon the amount by which
the total net income exceeds $250,000 and does not exceed
$500,000, and 6 per centum per annum upon the amount by
which the total net income exceeds $500,000. All the pro-
visions of this section relating to individuals who are chargeable
with the normal income tax, so far as they are applicable and
are not inconsistent with this subdivision of paragraph A, shall
apply to the levy, assessment, and collection of the additional
tax imposed under this section. Every person subject to this

240

act of 1913 241

additional tax shall, for the purpose of its assessment and col-
lection, make a personal return of his total net income from
all sources, corporate or otherwise, for the preceding calendar
year, under rules and regulations to be prescribed by the Com-
missioner of Internal Revenue and approved by the Secretary of
the Treasury. For the purpose of this additional tax the
taxable income of any individual shall embrace the share to
which he would be entitled of the gains and profits, if divided
or distributed, whether divided or distributed or not, of all
corporations, joint-stock companies, or associations however
created or organized, formed or fraudulently availed of for the
purpose of preventing the imposition of such tax through the
medium of permitting such gains and profits to accumulate
instead of being divided or distributed; and the fact that any
such corporation, joint-stock company, or association, is a mere
holding company, or that the gains and profits are permitted
to accumulate beyond the reasonable needs of the business
shall be prima facie evidence of a fraudulent purpose to escape
such tax; but the fact that the gains and profits are in any case
permitted to accumulate and become surplus shall not be con-
strued as evidence of a purpose to escape the said tax in such
case unless the Secretary of the Treasury shall certify that in
his opinion such accumulation is unreasonable for the purposes
of the business. When requested by the Commissioner of
Internal Revenue, or any district collector of internal revenue,
such corporation, joint-stock company, or association shall
forward to him a correct statement of such profits and the names
of the individuals who would be entitled to the same if dis-
tributed.

B. That, subject only to such exemptions and deductions as
are hereinafter allowed, the net income of a taxable person shall
include gains, profits, and income derived from salaries, wages,
or compensation for personal service of whatever kind and in
whatever form paid, or from professions, vocations, businesses,
trade, commerce, or sales, or dealings in property, whether real
or personal, growing out of the ownership or use of or interest
in real or personal property, also from interest, rent, dividends,,
securities, or the transaction of any lawful business carried on

242 act of 1913

for gain or profit, or gains or profits and income derived from
any source whatever, including the income from but not the
value of property acquired by gift, bequest, devise, or descent:
Provided, That the proceeds of life insurance policies paid upou
the death of the person insured or payments made by or credited
to the insured, on life insurance, endowment, or annuity con-
tracts, upon the return thereof to the insured at the maturity
of the term mentioned in the contract, or upon surrender of
contract, shall not be included as income.

That in computing net income for the purpose of the normal
tax there shall be allowed as deductions: First, the necessary-
expenses actually paid in carrying on any business, not including
personal, living, or family expenses; second, all interest paid
within the year by a taxable person on indebtedness; third, all
national, State, county, school, and municipal taxes paid within
the year, not including those assessed against local benefits;
fourth, losses actually sustained during the year, incurred in
trade or arising from fires, storms, or shipwreck, and not com-
pensated for by insurance or otherwise; fifth, debts due to the
taxpayer actually ascertained to be worthless and charged off
within the year; sixth, a reasonable allowance for the exhaustion,
wear and tear of property arising out of its use or employment
in the business, not to exceed, in the case of mines, 5 per centum
of the gross value at the mine of the output for the year for
which the computation is made, but no deduction shall be made
for any amount of expense of restoring property or making good
the exhaustion thereof for which an allowance is or has been
made: Provided, That no deduction shall be allowed for any
amount paid out for new buildings, permanent improvements,
or betterments, made to increase the value of any property or
estate; seventh, the amount received as dividends upon the
stock or from the net earnings of any corporation, joint-stock
company, association, or insurance company which is taxable
upon its net income as hereinafter provided; eighth, the amount
of income, the tax upon which has been paid or withheld for
payment at the source of the income, under the provisions of
this section, provided that whenever the tax upon the income
of a person is requried to be withheld and paid at the source

act of 1913 243

as hereinafter required, if such annual income does not exceed
the sum of $3,000 or is not fixed or certain, or is indefinite, or
irregular as to amount or time of accrual, the same shall not be
deducted in the personal return of such person.

The net income from property owned and business carried
on in the United States by persons residing elsewhere shall be
computed upon the basis prescribed in this paragraph and that
part of paragraph G of this section relating to the computation
of the net income of corporations, joint-stock and insurance
companies, organized, created, or existing under the laws of
foreign countries, in so far as applicable.

That in computing net income under this section there shall
be excluded the interest upon the obligations of a State or any
political subdivision thereof, and upon the obligations of the
United States or its possessions; also the compensation of the
present President of the United States during the term for which
he has been elected, and of the judges of the supreme and inferior
courts of the United States now in office, and the compensation
of all officers and employees of a State or any political sub-
division thereof except when such compensation is paid by the
United States Government.

C. That there shall be deducted from the amount of the net
income of each of said persons, ascertained as provided herein,
the sum of $3,000, plus $1,000 additional if the person making
the return be a married man with a wife living with him, or plus
the sum of $1,000 additional if the person making the return
be a married woman with a husband living with her; but in no
event shall this additional exemption of $1,000 be deducted
by both a husband and a wife: Provided, That only one deduc-
tion of $4,000 shall be made from the aggregate income of both
husband and wife when living together.

D. The said tax shall be computed upon the remainder of
said net income of each person subject thereto, accruing during
each preceding calendar year ending December thirty-first:
Provided, however, That for the year ending December thirty-
first, nineteen hundred and thirteen, said tax shall be computed
on the net income accruing from March first to December
thirty-first, nineteen hundred and thirteen, both dates inclusive,

244 act op 1913

after deducting five-sixths only of the specific exemptions and
deductions herein provided for. On or before the first day of
March, nineteen hundred and fourteen, and the first day of
March in each year thereafter, a true and accurate return, under
oath or affirmation, shall be made by each person of lawful age,
except as hereinafter provided, subject to the tax imposed by
this section, and having a net income of $3,000 or over for the
taxable year, to the collector of internal revenue for the district
in which such person resides or has his principal place of busi-
ness, or, in the case of a person residing in a foreign country, in
the place where his principal business is carried on within the
United States, in such form as the Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury,
shall prescribe, setting forth specifically the gross amount of
income from all separate sources and from the total thereof,
deducting the aggregate items or expenses and allowance herein
authorized; guardians, trustees, executors, administrators,
agents, receivers, conservators, and all persons, corporations,
or associations acting in any fiduciary capacity, shall make and
render a return of the net income of the person for whom they
act, subject to this tax, coming into their custody or control
and management, and be subject to all the provisions of this
section which apply to individuals: Provided, That a return made
by one of two or more joint guardians, trustees, executors, ad-
ministrators, agents, receivers, and conservators, or other per-
sons acting in a fiduciary capacity, filed in the district where
such person resides, or in the district where the will or other
instrument under which he acts is recorded, under such regu-
lations as the Secretary of the Treasury may prescribe, shall be
a sufficient compliance with the requirements of this paragraph;
and also all persons, firms, companies, copartnerships, corpo-
rations, joint-stock companies or associations, and insurance
companies, except as hereinafter provided, in whatever capacity
acting, having the control, receipt, disposal, or payment of fixed
or determinable annual or periodical gains, profits, and income
of another person subject to tax, shall in behalf of such person de-
duct and withhold from the payment an amount equivalent to
the normal income tax upon the same and make and render a

act of 1913 245

return, as aforesaid, but separate and distinct, of the portion
of the income of each person from which the normal tax has
been thus withheld, and containing also the name and address
of such person or stating that the name and address or the
address, as the case may be, are unknown: Provided, That the
provision requiring the normal tax of individuals to be withheld
at the source of the income shall not be construed to require any
of such tax to be withheld prior to the first day of November,
nineteen hundred and thirteen: Provided further, That in either
case above mentioned no return of income not exceeding $3,000
shall be required: Provided further, That any persons carrying on
business in partnership shall be liable for income tax only in
their individual capacity, and the share of the profits of a part-
nership to which any taxable partner would be entitled if the
same were divided, whether divided or otherwise, shall be re-
turned for taxation and the tax paid, under the provisions of
this section, and any such firm, when requested by the Com-
missioner of Internal Revenue, or any district collector, shall
forward to him a correct statement of such profits and the names
of the individuals who would be entitled to the same, if dis-
tributed: Provided further, That persons liable for the normal
income tax only, on their own account or in behalf of another,
shall not be required to make return of the income derived from
dividends on the capital stock or from the net earnings of cor-
porations, joint-stock companies or associations, and insurance
companies taxable upon their net income as hereinafter pro-
vided. Any person for whom return has been made and the
tax paid, or to be paid as aforesaid, shall not be required to make
a return unless such person has other net income, but only one
deduction of $3,000 shall be made in the case of any such person.
The collector or deputy collector shall require every list to be
verified by the oath or affirmation of the party rendering it.
If the collector or deputy collector have reason to believe that
the amount of any income returned is understated, he shall
give due notice to the person making the return to show cause
why the amount of the return should not be increased, and upon
proof of the amount understated may increase the same accord-
ingly. If dissatisfied with the decision of the collector, such

246 act of 1913

person may submit the case, with all the papers, to the Com-
missioner of Internal Revenue for his decision, and may furnish
sworn testimony of witnesses to prove any relevant facts.

E. That all assessments shall be made by the Commissioner
of Internal Revenue and all persons shall be notified of the
amount for which they are respectively liable, on or before the
first day of June of each successive year, and said assessments
shall be paid on or before the thirtieth day of June, except in
cases of refusal or neglect to make such return and in cases of
false or fraudulent returns, in which cases the Commissioner
of Internal Revenue shall, upon the discovery thereof, at any
time within three years after said return is due, make a return
upon information obtained as provided for in this section or by
existing law, and the assessment made by the Commissioner of
Internal Revenue thereon shall be paid by such person or per-
sons immediately upon notification of the amount of such as-
sessment; and to any sum or sums due and unpaid after the
thirtieth day of June in any year, and for ten days after notice
and demand thereof by the collector, there shall be added the
sum of 5 per centum on the amount of tax unpaid, and interest
at the rate of 1 per centum per month upon said tax from the
time the same became due, except from the estates of insane,
deceased, or insolvent persons.

All persons, firms, copartnerships, companies, corporations,
joint-stock companies or associations, and insurance companies,
in whatever capacity acting, including lessees or mortgagors
of real or personal property, trustees acting in any trust capac-
ity, executors, administrators, agents, receivers, conservators,
employers, and all officers and employees of the United States
having the control, receipt, custody, disposal, or payment of
interest, rent, salaries, wages, premiums, annuities, compen-
sation, remuneration, emoluments, or other fixed or determin-
able annual gains, profits, and income of another person, exceed-
ing $3,000 for any taxable year, other than dividends on capital
stock, or from the net earnings of corporations and joint-stock
companies or associations subject to like tax, who are required
to make and render a return in behalf of another, as provided
herein, to the collector of his, her, or its district, are hereby

act of 1913 247

authorized and required to deduct and withhold from such
annual gains, profits, and income such sum as will be sufficient
to pay the normal tax imposed thereon by this section, and
shall pay to the officer of the United States Government au-
thorized to receive the same; and they are each hereby made
personally liable for such tax. In all cases where the income
tax of a person is withheld and deducted and paid or to be paid
at the source, as aforesaid, such person shall not receive the
benefit of the deduction and exemption allowed in paragraph
C of this section except by an application for refund of the tax
unless he shall, not less than thirty days prior to the day on
which the return of his income is due, file with the person who
is required to withhold and pay tax for him, a signed notice in
writing claiming the benefit of such exemption and thereupon no
tax shall be withheld upon the amount of such exemption: Pro-
vided, That if any person for the purpose of obtaining any
allowance or reduction by virtue of a claim for such exemption,
either for himself or for any other person, knowingly makes any
false statement or false or fraudulent representation, he shall
be liable to a penalty of $300; nor shall any person under the
foregoing conditions be allowed the benefit of any deduction
provided for in subsection B of this section unless he shall, not
less than thirty days prior to the day on which the return of
his income is due, either file with the person who is required to
withhold and pay tax for him a true and correct return of his
annual gains, profits, and income from all other sources, and
also the deductions asked for, and the showing thus made shall
then become a part of the return to be made in his behalf by
the person required to withhold and pay the. tax, or likewise
make application for deductions to the collector of the district
in which return is made or to be made for him: Provided further,
That if such person is a minor or an insane person, or is absent
from the United States, or is unable owing to serious illness to
make the return and application above provided for, the return
and application may be made for him or her by the person re-
quired to withhold and pay the tax, he making oath under the
penalties of this Act that he has sufficient knowledge of the
affairs and property of his beneficiary to enable him to make a

248 act op 1913

full and complete return for him or her, and that the return and
application made by him are full and complete: Provided further,
That the amount of the normal tax hereinbefore imposed shall
be deducted and withheld from fixed and determinable annual
gains, profits, and income derived from interest upon bonds and
mortgages, or deeds of trust or other similar obligations of cor-
porations, joint-stock companies or associations, and insurance
companies, whether payable annually or at shorter or longer
periods, although such interest does not amount to $3,000, sub-
ject to the provisions of this section requiring the tax to be
withheld at the source and deducted from annual income and
paid to the Government; and likewise the amount of such tax
shall be deducted and withheld from coupons, checks, or bills
of exchange for or in payment of interest upon bonds of foreign
countries and upon foreign mortgages or like obligations (not
payable in the United States), and also from coupons, checks,
or bills of exchange for or in payment of any dividends upon
the stock or interest upon the obligations of foreign corporations,
associations, and insurance companies engaged in business in
foreign countries; and the tax in each case shall be withheld and
deducted for and in behalf of any person subject to the tax
hereinbefore imposed, although such interest, dividends, or
other compensation does not exceed $3,000, by any banker or
person who shall sell or otherwise realize coupons, checks, or
bills of exchange drawn or made in payment of any such interest
or dividends (not payable in the United States), and any person
who shall obtain payment (not in the United States), in be-
half of another of such dividends and interest by means of
coupons, checks, or bills of exchange, and also any dealer in
such coupons who shall purchase the same for any such divi-
dends or interest (not payable in the United States), otherwise
than from a banker or another dealer in such coupons; but in
each case the benefit of the exemption and the deduction allow-
able under this section may be had by complying with the fore-
going provisions of this paragraph.

All persons, firms, or corporations undertaking as a matter
of business or for profit the collection of foreign payments of
such interest or dividends by means of coupons, checks, or bills

act of 1913 249

of exchange shall obtain a license from the Commissioner of
Internal Revenue, and shall be subject to such regulations en-
abling the Government to ascertain and verify the due with-
holding and payment of the income tax required to be withheld
and paid as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, shall prescribe; and
any person who shall knowingly undertake to collect such pay-
ments as aforesaid without having obtained a license therefor,
or without complying with such regulations, shall be deemed
guilty of a misdemeanor and for each offense be fined in a sum
not exceeding $5,000, or imprisoned for a term not exceeding
one year, or both, in the discretion of the court.

Nothing in this section shall be construed to release a taxable
person from liability for income tax, nor shall any contract
entered into after this Act takes effect be valid in regard to any
Federal income tax imposed upon a person liable to such pay-
ment.

The tax herein imposed upon annual gains, profits, and in-
come not falling under the foregoing and not returned and paid
by virtue of the foregoing shall be assessed by personal return
under rules and regulations to be prescribed by the Commis-
sioner of Internal Revenue and approved by the Secretary of
the Treasury.

The provisions of this section relating to the deduction and
payment of the tax at the source of income shall only apply to
the normal tax hereinbefore imposed upon individuals.

F. That if any person, corporation, joint-stock company,
association, or insurance company liable to make the return
or pay the tax aforesaid shall refuse or neglect to make a return
at the time or times hereinbefore specified in each year, such
person shall be liable to a penalty of not less than $20 nor more
than $1,000. Any person or any officer of any corporation re-
quired by law to make, render, sign, or verify any return who
makes any false or fraudulent return or statement with intent
to defeat or evade the assessment required by this section to be
made shall be guilty of a misdemeanor, and shall be fined not
exceeding $2,000 or be imprisoned not exceeding one year, or
both, at the discretion of the court, wijth the costs of prosecution.

250 act of 1913

G. (a) That the normal tax hereinbefore imposed upon in-
dividuals likewise shall be levied, assessed, and paid annually
upon the entire net income arising or accruing from all sources
during the preceding calendar year to every corporation, joint-
stock company or association, and every insurance company,
organized in the United States, no matter how created or
organized, not including partnerships; but if organized, author-
ized, or existing under the laws of any foreign country, then
upon the amount of net income accruing from business trans-
acted and capital invested within the United States during
such year: Provided, however, That nothing in this section shall
apply to labor, agricultural, or horticultural organizations, or
to mutual savings banks not having a capital stock represented
by shares, or to fraternal beneficiary societies, orders, or as-
sociations operating under the lodge system or for the exclusive
benefit of the members of a fraternity itself operating under
the lodge system, and providing for the payment of life, sick,
accident, and other benefits to the members of such societies,
orders or associations and dependents of such members, nor
to domestic building and loan associations, nor to cemetery
companies, organized and operated exclusively for the mutual
benefit of their members, nor to any corporation or association
organized and operated exclusively for religious, charitable,
scientific, or educational purposes, no part of the net income of
which inures to the benefit of any private stockholder or indi-
vidual, nor to business leagues, nor to chambers of commerce
or boards of trade, not organized for profit or no part of the
net income of which inures to the benefit of the private stock-
holder or individual; nor to any civic league or organization not
organized for profit, but operated exclusively for the promotion
of social welfare: Provided further, That there shall not be taxed
under this section any income derived from any public utility or
from the exercise of any essential governmental function accru-
ing to any State, Territory, or the District of Columbia, or any
political subdivision of a State, Territory, or the District of
Columbia, nor any income accruing to the government of the
Philippine Islands or Porto Rico, or of any political subdivision
of the Philippine Islands or Porto Rico: Provided, That when-

ACT OF 1913 251

ever any State, Territory, or the District of Columbia, or any
political subdivision of a State or Territory, has, prior to the
passage of this Act, entered in good faith into a contract with
any person or corporation, the object and purpose of which is
to acquire, construct, operate or maintain a public utility, no
tax shall be levied under the provisions of this Act upon the
income derived from the operation of such public utility, so
far as the payment thereof will impose a loss or burden upon
such State, Territory, or the District of Columbia, or a political
subdivision of a State or Territory; but this provision is not
intended to confer upon such person or corporation any financial
gain or exemption or to relieve such person or corporation from
the payment of a tax as provided for in this section upon the
part or portion of the said income to which such person or cor-
poration shall be entitled under such contract.

(b) Such net income shall be ascertained by deducting from
the gross amount of the income of such corporation, joint-stock
company or association, or insurance company, received within
the year from all sources, (first) all the ordinary and necessary
expenses paid within the year in the maintenance and operation
of its business and properties, including rentals or other pay-
ments required to be made as a condition to the continued use
or possession of property; (second) all losses actually sustained
within the year and not compensated by insurance or otherwise,
including a reasonable allowance for depreciation by use, wear
and tear of property, if any; and in the case of mines a reason-
able allowance for depletion of ores and all other natural de-
posits, not to exceed 5 per centum of the gross value at the mine
of the output for the year for which the computation is made;
and in case of insurance companies the net addition, if any, re-
quired by law to be made within the year to reserve funds and
the sums other than dividends paid within the year on policy
and annuity contracts: Provided, That mutual fire insurance
companies requiring their members to make premium deposits
to provide for losses and expenses shall not return as income
any portion of the premium deposits returned to their policy-
holders, but shall return as taxable income all income received
by them from all other sources plus such portions of the premium

252 act of 1913

deposits as are retained by the companies for purposes other
than the payment of losses and expenses and reinsurance re-
serves: Provided further, That mutual marine insurance com-
panies shall include in their return of gross income gross pre-
miums collected and received by them less amounts paid for
reinsurance, but shall be entitled to include in deductions from
gross income amounts repaid to policyholders on account of
premiums previously paid by them and interest paid upon such
amounts between the ascertainment thereof and the payment
thereof and life insurance companies shall not include as income
in any year such portion of any actual premium received from
any individual policyholder as shall have been paid back or cred-
ited to such individual policyholder, or treated as an abatement
of premium of such individual policyholder, within such year;
(third) the amount of interest accrued and paid within the year
on its indebtedness to an amount of such indebtedness not ex-
ceeding one-half of the sum of its interest bearing indebtedness
and its paid-up capital stock outstanding at the close of the
year, or if no capital stock, the amount of interest paid within
the year on an amount of its indebtedness not exceeding the
amount of capital employed in the business at the close of the
year: Provided, That in case of indebtedness wholly secured by
collateral the subject of sale in ordinary business of such cor-
poration, joint-stock company, or association, the total inter-
est secured and paid by such company, corporation, or associa-
tion within the year on any such indebtedness may be deducted
as a part of its expense of doing business: Provided further, That
in the case of bonds or other indebtedness, which have been
issued with a guaranty that the interest payable thereon shall
be free from taxation, no deduction for the payment of the tax
herein imposed shall be allowed; and in the case of a bank,
banking association, loan, or trust company, interest paid within
the year on deposits or on moneys received for investment and
secured by interest-bearing certificates of indebtedness issued
by such bank, banking association, loan or trust company;
(fourth) all sums paid by it within the year for taxes imposed
under the authority of the United States or of any State or
Territory thereof, or imposed by the Government of any foreign

act of 1913 253

country: Provided, That in the case of a corporation, joint-stock
company or association, or insurance company, organized,
authorized, or existing under the laws of any foreign country,
such net income shall be ascertained by deducting from the
gross amount of its income accrued within the year from business
transacted and capital invested within the United States, (first)
all the ordinary and necessary expenses actually paid within the
year out of earnings in the maintenance and operation of its
business and property within the United States, including
rentals or other payments required to be made as a condition
to the continued use or possession of property; (second) all
losses actually sustained within the year in business conducted
by it within the United States and not compensated by insur-
ance or otherwise, including a reasonable allowance for depre-
ciation by use, wear and tear of property, if any, and in the case
of mines a reasonable allowance for depletion of ores and all
other natural deposits, not to exceed 5 per centum of the gross
value at the mine of the output for the year for which the com-
putation is made; and in case of insurance companies the net
addition, if any, required by law to be made within the year
to reserve funds and the sums other than dividends paid within
the year on policy and annuity contracts: Provided further, That
mutual fire insurance companies requiring their members to
make premium deposits to provide for losses and expenses shall
not return as income any portion of the premium deposits re-
turned to their policyholders, but shall return as taxable income
all income received by them from all other sources plus such
portions of the premium deposits as are retained by the com-
panies for purposes other than the payment of losses and ex-
penses and reinsurance reserves: Provided further, That mutual
marine insurance companies shall include in their return of gross
income gross premiums collected and received by them less
amounts paid for reinsurance, but shall be entitled to include
in deductions from gross income amounts repaid to policy-
holders on account of premiums previously paid by them, and
interest paid upon such amounts between the ascertainment
thereof and the payment thereof and life insurance companies
shall not include as income in any year such portion of any

254 act of 1913

actual premium received from any individual policyholder as
shall have been paid back or credited to such individual policy-
holder, or treated as an abatement of premium of such individual
policyholder, within such year; (third) the amount of interest
accrued and paid within the year on its indebtedness to an
amount of such indebtedness not exceeding the proportion of
one-half of the sum of its interest bearing indebtedness and its
paid-up capital stock outstanding at the close of the year, or
if no capital stock, the capital employed in the business at the
close of the year which the gross amount of its income for the
year from business transacted and capital invested within the
United States bears to the gross amount of its income derived
from all sources within and without the United States: Provided,
That in the case of bonds or other indebtedness which have been
issued with a guaranty that the interest payable thereon shall
be free from taxation, no deduction for the payment of the tax
herein imposed shall be allowed; (fourth) all sums paid by it
within the year for taxes imposed under the authority of the
United States or of any State or Territory thereof or the District
of Columbia. In the case of assessment insurance companies,
whether domestic or foreign, the actual deposit of sums with
State or Territorial officers, pursuant to law, as additions to
guarantee or reserve funds shall be treated as being payments
required by law to reserve funds.

(c) The tax herein imposed shall be computed upon its entire
net income accrued within each preceding calendar year ending
December thirty-first: Provided, however, That for the year end-
ing December thirty-first, nineteen hundred and thirteen, said
tax shall be imposed upon its entire net income accrued within
that portion of said year from March first to December thirty-
first, both dates inclusive, to be ascertained by taking five-sixths
of its entire net income for said calendar year: Provided further,
That any corporation, joint-stock company or association, or
insurance company subject to this tax may designate the last
day of any month in the year as the day of the closing of its fiscal
year and shall be entitled to have the tax payable by it com-
puted upon the basis of the net income ascertained as herein
provided for the year ending on the day so designated in the

act of 1913 255

year preceding the date of assessment instead of upon the basis
of the net income for the calendar year preceding the date of
assessment; and it shall give notice of the day it has thus de-
signated as the closing of its fiscal year to the collector of the
district in which its principal business office is located at any
time not less than thirty days prior to the date upon which its
annual return shall be filed. All corporations, joint-stock com-
panies or associations, and insurance companies subject to the
tax herein imposed, computing taxes upon the income of the
calendar year, shall, on or before the first day of March, nine-
teen hundred and fourteen, and the first day of March in each
year thereafter, and all corporations, joint-stock companies or
associations, and insurance companies, computing taxes upon
the income of a fiscal year which it may designate in the manner
hereinbefore provided, shall render a like return within sixty
days after the close of its said fiscal year, and within sixty days
after the close of its fiscal year in each year thereafter, or in the
case of a corporation, joint-stock company or association, or
insurance company, organized or existing under the laws of a
foreign country, in the place where its principal business is
located within the United States, in such form as the Commis-
sioner of Internal Revenue, with the approval of the Secretary
of the Treasury, shall prescribe, shall render a true and accurate
return under oath or affirmation of its president, vice president,
or other principal officer, and its treasurer or assistant treasurer,
to the collector of internal revenue for the district in which it
has its principal place of business, setting forth (first) the
total amount of its paid-up capital stock outstanding, or if no
capital stock, its capital employed in business, at the close of
the year; (second) the total amount of its bonded and other
indebtedness at the close of the year; (third) the gross amount
of its income, received during such year from all sources, and
if organized under the laws of a foreign country the gross amount
of its income received within the year from business transacted
and capital invested within the United States; (fourth) the
total amount of all its ordinary and necessary expenses paid out
of earnings in the maintenance and operation of the business
and properties of such corporation, joint-stock company or

256 act of 1913

association, or insurance company within the year, stating
separately all rentals or other payments required to be made
as a condition to the continued use or possession of property, and
if organized under the laws of a foreign country the amount so
paid in the maintenance and operation of its business within the
United States; (fifth) the total amount of all losses actually sus-
tained during the year and not compensated by insurance or
otherwise, stating separately any amounts allowed for depreci-
ation of property, and in case of insurance companies the net
addition, if any, required by law to be made within the year to
reserve funds and the sums other than dividends paid within
the year on policy and annuity contracts: Provided further, That
mutual fire insurance companies requiring their members to make
premium deposits to provide for losses and expenses shall not
return as income any portion of the premium deposits returned
to their policyholders, but shall return as taxable income all in-
come received by them from all other sources plus such portions
of the premium deposits as are retained by the companies for
purposes other than the payment of losses and expenses and
reinsurance reserves: Provided further, That mutual marine
insurance companies shall include in their return of gross in-
come gross premiums collected and received by them less
amounts paid for reinsurance, but shall be entitled to include
in deductions from gross income amounts repaid to policy-
holders on account of premiums previously paid by them, and
interest paid upon such amounts between the ascertainment
thereof and the payment thereof and life insurance companies
shall not include as income in any year such portipn of any actual
premium received from any individual policyholder as shall
have been paid back or credited to such individual policyholder,
or treated as an abatement of premium of such individual
policyholder, within such year; and in case of a corporation,
joint-stock company or association, or insurance company,
organized under the laws of a foreign country, all losses actually
sustained by it during the year in business conducted by it
within the United States, not compensated by insurance or
otherwise, stating separately any amounts allowed for depreci-
ation of property, and in case of insurance companies the net

act op 1913 257

addition, if any, required by law to be made within the year to
reserve funds and the sums other than dividends paid within
the year on policy and annuity contracts: Provided further, That
mutual fire insurance companies requiring their members to make
premium deposits to provide for losses and expenses shall not re-
turn as income any portion of the premium deposits returned
to their policyholders, but shall return as taxable income all in-
come received by them from all other sources plus such portions
of the premium deposits as are retained by the companies for
purposes other than the payment of losses and expenses and re-
insurance reserves: Provided further, That mutual marine in-
surance companies shall include in their return of gross income
gross premiums collected and received by them less amounts
paid for reinsurance, but shall be entitled to include in deduc-
tions from gross income amounts repaid to policyholders on
account of premiums previously paid by them and interest paid
upon such amounts between the ascertainment thereof and the
payment thereof and life insurance companies shall not include
as income in any year such portion of any actual premium re-
ceived from any individual policyholder as shall have been paid
back or credited to such individual policyholder, or treated as
an abatement of premium of such individual policyholder, within
such year; (sixth) the amount of interest accrued and paid
within the year on its bonded or other indebtedness not exceed-
ing one-half of the sum of its interest bearing indebtedness and
its paid-up capital stock, outstanding at the close of the year, or
if no capital stock, the amount of interest paid within the year
on an amount of indebtedness not exceeding the amount of
capital employed in the business at the close of the year, and in
the case of a bank, banking association, or trust company, stat-
ing separately all interest paid by it within the year on deposits;
or in case of a corporation, joint-stock company or association,
or insurance company, organized under the laws of a foreign
country, interest so paid on its bonded or other indebtedness
to an amount of such bonded or other indebtedness not exceed-
ing the proportion of its paid-up capital stock outstanding at
the close of the year, or if no capital stock, the amount of capital
employed in the business at the close of the year, which the

258 act op 1913

gross amount of its income for the year from business transacted
and capital invested within the United States bears to the gross
amount of its income derived from all sources within and with-
out the United States; (seventh) the amount paid by it within the
year for taxes imposed under the authority of the United States
and separately the amount so paid by it for taxes imposed by
the Government of any foreign country; (eighth) the net income
of such corporation, joint-stock company or association, or
insurance company, after making the deductions in this sub-
section authorized. All such returns shall as received be trans-
mitted forthwith by the collector to the Commissioner of Inter-
nal Revenue.

All assessments shall be made and the several corporations,
joint-stock companies or associations, and insurance companies
shall be notified of the amount for which they are respectively
liable on or before the first day of June of each successive year,
and said assessment shall be paid on or before the thirtieth day
of June: Provided, That every corporation, joint-stock company
or association, and insurance company, computing taxes upon
the income of the fiscal year which it may designate in the man-
ner hereinbefore provided, shall pay the taxes due under its
assessment within one hundred and twenty days after the date
upon which it is required to file its list or return of income for
assessment; except in cases of refusal or neglect to make such
return, and in cases of false or fraudulent returns, in which cases
the Commissioner of Internal Revenue shall, upon the discovery
thereof, at any time within three years after said return is due,
make a return upon information obtained as provided for in
this section or by existing law, and the assessment made by
the Commissioner of Internal Revenue thereon shall be paid
by such corporation, joint-stock company or association, or
insurance company immediately upon notification of the amount
of such assessment; and to any sum or sums due and unpaid
after the thirtieth day of June in any year, or after one hundred
and twenty days from the date on which the return of income
is required to be made by the taxpayer, and after ten days'
notice and demand thereof by the collector, there shall be added
the sum of 5 per centum on the amount of tax unpaid and inter-

act of 1913 259

est at the rate of 1 per centum per month upon said tax from
the time the same becomes due.

(d) When the assessment shall be made, as provided in this
section, the returns, together with any corrections thereof which
may have been made by the commissioner, shall be filed in the
office of the Commissioner of Internal Revenue and shall con-
stitute public records and be open to inspection as such: Pro-
vided, That any and all such returns shall be open to inspection
only upon the order of the President, under rules and regulations
to be prescribed by the Secretary of the Treasury and approved
by the President: Provided further, That the proper officers
of any State imposing a general income tax may, upon the re-
quest of the governor thereof, have access to said returns or to
an abstract thereof, showing the name and income of each such
corporation, joint-stock company, association or insurance
company, at such times and in such manner as the Secretary
of the Treasury may prescribe.

If any of' the corporations, joint-stock companies or associ-
ations, or insurance companies aforesaid, shall refuse or neglect
to make a return at the time or times hereinbefore specified
in each year, or shall render a false or fraudulent return, such
corporation, joint-stock company or association, or insurance
company shall be liable to a penalty of not exceeding $10,000.

H. That the word "State" or "United States" when used
in this section shall be construed to include any Territory,
Alaska, the District of Columbia, Porto Rico, and the Philippine
Islands, when such construction is necessary to carry out its
provisions.

I. That sections thirty-one hundred and sixty-seven, thirty-
one hundred and seventy-two, thirty-one hundred and seventy-
three, and thirty-one hundred and seventy-six of the Revised
Statutes of the United States as amended are hereby amended
so as to read as follows:

"Sec. 3167. It shall be unlawful for any collector, deputy
collector, agent, clerk, or other officer or employee of the United
States to divulge or to make known in any manner whatever
not provided by law to any person the operations, style of work,
or apparatus of any manufacturer or producer visited by him

260 act op 1913

in the discharge of his official duties, or the amount or source of
income, profits, losses, expenditures, or any particular thereof,
set forth or disclosed in any income return by any person or
corporation, or to permit any income return or copy thereof
or any book containing any abstract or particulars thereof to
be seen or examined by any person except as provided by law;
and it shall be unlawful for any person to print or publish in
any manner whatever not provided by law any income return
or any part thereof or the amount or source of income, profits,
losses, or expenditures appearing in any income return; and any
offense against the foregoing provision shall be a misdemeanor
and be punished by a fine not exceeding $1,000 or by imprison-
ment not exceeding one year, or both, at the discretion of the
court; and if the offender be an officer or employee of the United
States he shall be dismissed from office and be incapable there-
after of holding any office under the Government.

"Sec. 3172. Every collector shall, from time to time, cause
his deputies to proceed through every part of his district and
inquire after and concerning all persons therein who are liable
to pay any internal-revenue tax, and all persons owning or hav-
ing the care and management of any objects liable to pay any
tax, and to make a list of such persons and enumerate said
objects.

"Sec. 3173. It shall be the duty of any person, partnership,
firm, association, or corporation, made liable to any duty,
special tax, or other tax imposed by law, when not otherwise
provided for, in case of a special tax, on or before the thirty-first
day of July in each year, in case of income tax on or before the
first day of March in each year, and in other cases before the
day on which the taxes accrue, to make a list or return, verified
by oath or affirmation, to the collector or a deputy collector
of the district where located, of the articles or objects, including
the amount of annual income charged with a duty or tax, the
quantity of goods, wares, and merchandise made or sold and
charged with a tax, the several rates and aggregate amount,
according to the forms and regulations to be prescribed by the
Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, for which such person, partnership,

act op 1913 261

firm, association, or corporation is liable: Provided, That if any
person liable to pay any duty or tax, or owning, possessing, or
having the care or management of property, goods, wares, and
merchandise, articles, or objects liable to pay any duty, tax, or
license, shall fail to make and exhibit a list or return required
by law, but shall consent to disclose the particulars of any
and all the property, goods, wares, and merchandise, articles,
and objects liable to pay any duty or tax, or any business or
occupation liable to pay any tax as aforesaid, then, and in that
case it shall be the duty of the collector or deputy collector to
make such list or return, which, being distinctly read, consented
to, and j3igned and verified by oath or affirmation by the person
so owning, possessing, or having the care and management as
aforesaid, may be received as the list of such person: Provided
further, That in case no annual list or return has been rendered
by such person to the collector or deputy collector as required
by law, and the person shall be absent from his or her residence
or place of business at the time the collector or a deputy col-
lector shall call for the annual list or return, it shall be the duty
of such collector or deputy collector to leave at such place of
residence or business, with some one of suitable age and discre-
tion, if such be present, otherwise to deposit in the nearest post
office, a note or memorandum addressed to such person, requir-
ing him or her to render to such collector or deputy collector
the list or return required by law within ten days from the date
of such note or memorandum, verified by oath or affirmation.
And if any person, on being notified or required as aforesaid,
shall refuse or neglect to render such list or return within the
time required as aforesaid, or whenever any person who is re-
quired to deliver a monthly or other return of objects subject
to tax fails to do so at the time required, or delivers any return
which, in the opinion of the collector, is false or fraudulent,
or contains any undervaluation or understatement, it shall be
lawful for the collector to summon such person, or any other
person having possession, custody, or care of books of account
containing entries relating to the business of such person, or
any other person he may deem proper, to appear before him
and produce such books, at a time and place named in the sum-

262 act of 1913

mons, and to give testimony or answer interrogatories, under
oath, respecting any objects liable to tax or the returns thereof.
The collector may summon any person residing or found within
the State in which his district lies; and when the person intended
to be s umm oned does not reside and can not be found within
such State, he may enter any collection district where such per-
son may be found and there make the examination herein au-
thorized. And to this end he may there exercise all the authority
which he might lawfully exercise in the district for which he was
commissioned.

"Sec. 3176. When any person, corporation, company, or
association refuses or neglects to render any return or list re-
quired by law, or renders a false or fraudulent return or list,
the collector or any deputy collector shall make, according to
the best information which he can obtain, including that derived
from the evidence elicited by the examination of the collector,
and on his own view and information, such list or return, accord-
ing to the form prescribed, of the income, property, and objects
liable to tax owned or possessed or under the care or manage-
ment of such person or corporation, company or association,
and the Commissioner of Internal Revenue shall assess all taxes
not paid by stamps, including the amount, if any, due for special
tax, income or other tax, and in case of any return of a false or
fraudulent list or valuation intentionally he shall add 100 per
centum to such tax; and in case of a refusal or neglect, except in
cases of sickness or absence, to make a list or return, or to verify
the same as aforesaid, he shall add 50 per centum to such tax.
In case of neglect occasioned by sickness or absence as aforesaid
the collector may allow such further time for making and de-
livering such list or return as he may deem necessary, not ex-
ceeding thirty days. The amount so added to the tax shall be
collected at the same time and in the same manner as the tax
unless the neglect or falsity is discovered after the tax has been
paid, in which case the amount so added shall be collected in
the same manner as the tax; and the list or return so made and
subscribed by such collector or deputy collector shall be held
prima facie good and sufficient for all legal purposes."

J. That it shall be the duty of every collector of internal

act op 1913 263

revenue, to whom any payment of any taxes other than the
tax represented by an adhesive stamp or other engraved stamp
is made under the provisions of this section, to give to the per-
son making such payment a full written or printed receipt,
expressing the amount paid and the particular account for
which such payment was made; and whenever such payment
is made such collector shall, if required, give a separate receipt
for each tax paid by any debtor, on account of payments made
to or to be made by him to separate creditors in such form that
such debtor can conveniently produce the same separately to
his several creditors in satisfaction of their respective demands
to the amounts specified in such receipts; and such receipts shall
be sufficient evidence in favor of such debtor to justify him in
withholding the amount therein expressed from his next pay-
ment to his creditor; but such creditor may, upon giving to his
debtor a full written receipt, acknowledging the payment to
him of whatever sum may be actually paid, and accepting the
amount of tax paid as aforesaid (specifying the same) as a
further satisfaction of the debt to that amount, require the
surrender to him of such collector's receipt.

K. That jurisdiction is hereby conferred upon the district
courts of the United States for the district within which any
person summoned under this section to appear to testify or to
produce books shall reside, to compel such attendance, pro-
duction of books, and testimony by appropriate process.

L. That all administrative, special, and general provisions
of law, including the laws in relation to the assessment, remis-
sion, collection, and refund of internal-revenue taxes not hereto-
fore specifically repealed and not inconsistent with the pro-
visions of this section, are hereby extended and made applicable
to all the provisions of this section and to the tax herein imposed.

M. That the provisions of this section shall extend to Porto
Rico and the Philippine Islands: Provided, That the adminis-
tration of the law and the collection of the taxes imposed in
Porto Rico and the Philippine Islands shall be by the appro-
priate internal-revenue officers of those governments, and all
revenues collected in Porto Rico and the Philippine Islands
thereunder shall accrue intact to the general governments,

264 act of 1913

thereof, respectively: And provided further, That the juris-
diction in this section conferred upon the district courts of the
United States shall, so far as the Philippine Islands are con-
cerned, be vested in the courts of the first instance of said
islands: And provided further, That nothing in this section shall
be held to exclude from the computation of the net income the
compensation paid any official by the governments of the Dis-
trict of Columbia, Porto Rico and the Philippine Islands or the
political subdivisions thereof. . . .

Section 4 (paragraph S) of the act of October 3, 1913, further
provides . . . That a special excise tax with respect to the
carrying on or doing of business, equivalent to 1 per centum
upon their entire net income, shall be levied, assessed, and
collected upon corporations, joint-stock companies or associ-
ations, and insurance companies, of the character described
in section thirty-eight of the act of August fifth, nineteen hun-
dred and nine, for the period from January first to February
twenty-eighth, nineteen hundred and thirteen, both dates in-
clusive, which said tax shall be computed upon one-sixth of
the entire net income of said corporations, joint-stock companies
or associations, and insurance companies, for said year, said
net income to be ascertained in accordance with the provisions
of subsection G of section two of this act: Provided further, That
the provisions of said section thirty-eight of the act of August
fifth, nineteen hundred and nine, relative to the collection of
the tax therein imposed shall remain in force for the collection
of the excise tax herein provided, but for the year nineteen
hundred and thirteen it shall not be necessary to make more
than one return and assessment for all the taxes imposed herein
upon said corporations, joint-stock companies or associations,
and insurance companies, either by way of income or excise,
which return and assessment shall be made at the times and
in the manner provided in this act. . . .

ACT OF 1916.

(Approved Sept. 8, 1916.)

Part I. — Individuals.

Sec. 1. (a) That there shall be levied, assessed, collected, and
paid annually upon the entire net income received in the pre-
ceding calendar year from all sources by every individual, a
citizen or resident of the United States, a tax of two per centum
upon such income; and a like tax shall be levied, assessed, col-
lected, and paid annually upon the entire net income received
in the preceding calendar year from all sources within the
United States by every individual, a nonresident alien, including
interest on bonds, notes, or other interest-bearing obligations
of residents, corporate or otherwise.

(b) In addition to the income tax imposed by subdivision (a)
of this section (herein referred to as the normal tax) there shall
be levied, assessed, collected, and paid upon the total net income
of every individual, or, in the case of a nonresident alien, the
total net income received from all sources within the United
States, an additional income tax (herein referred to as the
additional tax) of one per centum per annum upon the amount
by which such total net income exceeds $20,000 and does not
exceed $40,000, two per centum per annum upon the amount by
which such total net income exceeds $40,000 and does not exceed
$60,000, three per centum per annum upon the amount by which
such total net income exceeds $60,000 and does not exceed
$80,000, four per centum per annum upon the amount by which
such total net income exceeds $80,000 and does not exceed
$100,000, five per centum per annum upon the amount by which
such total net income exceeds $100,000 and does not exceed
$150,000, six per centum per annum upon the amount by which
such total net income exceeds $150,000 and does not exceed
$200,000, seven per centum per annum upon the amount by
which such total net income exceeds $200,000 and does not
exceed $250,000, eight per centum per annum upon the amount

265

266 act of 1916

by which such total net income exceeds $250,000 and does not
exceed $300,000, nine per centum per annum upon the amount
by which such total net income exceeds $300,000 and does not
exceed $500,000, ten per centum per annum upon the amount
by which such total net income exceeds $500,000, and does not
exceed $1,000,000, eleven per centum per annum upon the
amount by which such total net income exceeds $1,000,000 and
does not exceed $1,500,000, twelve per centum per annum upon
the amount by which such total net income exceeds $1,500,000
and does not exceed $2,000,000, and thirteen per centum per
annum upon the amount by which such total net income ex-
ceeds $2,000,000.

For the purpose of the additional tax there shall be included as
income the income derived from dividends on the capital stock or
from the net earnings of any corporation, joint-stock company
or association, or insurance company, except that in the case of
nonresident aliens such income derived from sources without the
United States shall not be included.

All the provisions of this title relating to the normal tax on
individuals, so far as they are applicable and are not inconsistent
with this subdivision and section three, shall apply to the
imposition, levy, assessment, and collection of the additional
tax imposed under this subdivision.

(c) The foregoing normal and additional tax rates shall apply
to the entire net income, except as hereinafter provided, received
by every taxable person in the calendar year nineteen hundred
and sixteen and in each calendar year thereafter.

INCOME DEFINED.

Sec. 2. (a) That, subject only to such exemptions and deduc-
tions as are hereinafter allowed, the net income of a taxable
person shall include gains, profits, and income derived from
salaries, wages, or compensation for personal service of what-
ever kind and in whatever form paid, or from professions, voca-
tions, businesses, trade, commerce, or sales, or dealings in
property, whether real or personal, growing out of the ownership
or use of or interest in real or personal property, also from inter-

act of 1916 267

est, rent, dividends, securities, or the transaction of any business
carried on for gain or profit, or gains or profits and income
derived from any source whatever: Provided, That the term
"dividends" as used in this title shall be held to mean any
distribution made or ordered to be made by a corporation,
joint-stock company, association, or insurance company, out. of
its earnings or profits accrued since March first, nineteen hun-
dred and thirteen, and payable to its shareholders, whether in
cash or in stock of the corporation, joint-stock company, asso-
ciation, or insurance company, which stock dividend shall be
considered income, to the amount of its cash value.

(b) Income received by estates of deceased persons during the
period of administration or settlement of the estate, shall be
subject to the normal and additional tax and taxed to their
estates, and also such income of estates or any kind of property
held in trust, including such income accumulated in trust for the
benefit of unborn or unascertained persons, or persons with
contingent interests, and income held for future distribution
under the terms of the will or trust shall be likewise taxed, the
tax in each instance, except when the income is returned for the
purpose of the tax by the beneficiary, to be assessed to the ex-
ecutor, administrator, or trustee, as the case may be: Provided,
That where the income is to be distributed annually or regularly
between existing heirs or legatees, or beneficiaries the rate
of tax and method of computing the same shall be based in
each case upon the amount of the individual share to be
distributed.

Such trustees, executors, administrators, and other fiduciaries
are hereby indemnified against the claims or demands of every
beneficiary for all payments of taxes which they shall be required
to make under the provisions of this title, and they shall have
credit for the amount of such payments against the beneficiary
or principal in any accounting which they make as such trustees
or other fiduciaries.

(c) For the purpose of ascertaining the gain derived from the
sale or other disposition of property, real, personal, or mixed,
acquired before March first, nineteen hundred and thirteen, the
fair market price or value of such property as of March first,

268 act of 1916

nineteen hundred and thirteen, shall be the basis for determin-
ing the amount of such gain derived.

ADDITIONAL TAX INCLUDES UNDISTRIBUTED PROFITS.

Sec. 3. For the purpose of the additional tax, the taxable
income of any individual shall include the share to which he
would be entitled of the gains and profits, if divided or distrib-
uted, whether divided or distributed or not, of all corporations,
joint-stock companies or associations, or insurance companies,
however created or organized, formed or fraudulently availed of
for the purpose of preventing the imposition of such tax through
the medium of permitting such gains and profits to accumulate
instead of being divided or distributed; and the fact that any
such corporation, joint-stock company or association, or insur-
ance company, is a mere holding company, or that the gains and
profits are permitted to accumulate beyond the reasonable needs
of the business, shall be prima facie evidence of a fraudulent
purpose to escape such tax; but the fact that the gains and
profits are in any case permitted to accumulate and become
surplus shall not be construed as evidence of a purpose to escape
the said tax in such case unless the Secretary of the Treasury
shall certify that in his opinion such accumulation is unreason-
able for the purposes of the business. When requested by the
Commissioner of Internal Revenue, or any district collector of
internal revenue, such corporation, joint-stock company or
association, or insurance company shall forward to him a correct
statement of such gains and profits and the names and addresses
of the individuals or shareholders who would be entitled to
the same if divided or distributed.

INCOME EXEMPT. FROM LAW.

Sec. 4. The following income shall be exempt from the pro-
visions of this title:

The proceeds of life insurance policies paid to individual bene-
ficiaries upon the death of the insured; the amount received by
the insured, as a return of premium or premiums paid by him

act of 1916 269

under life insurance, endowment, or annuity contracts, either
during the term or at the maturity of the term mentioned in the
contract or upon the surrender of the contract; the value of
property acquired by gift, bequest, devise, or descent (but the
income from such property shall be included as income); in-
terest upon the obligations of a State or any political subdivision
thereof or upon the obligations of the United States or its
possessions or securities issued under the provisions of the
Federal farm loan Act of July seventeenth, nineteen hundred
and sixteen; the compensation of the present President of the
United States during the term for which he has been elected, and
the judges of the Supreme and inferior courts of the United
States now in office, and the compensation of all officers and
employees of a State, or any political subdivision thereof, except
when such compensation is paid by the United States Govern-
ment.

DEDUCTIONS ALLOWED.

Sec. 5. That in computing net income in the case of a citizen
or resident of the United States —

(a) For the purpose of the tax there shall be allowed as
deductions —

First. The necessary expenses actually paid in carrying on any
business or trade, not including personal, living, or family
expenses;

Second. All interest paid within the year on his indebtedness;

Third. Taxes paid within the year imposed by the authority
of the United States, or its Territories, or possessions, or any
foreign country, or under the authority of any State, county,
school district, or municipality, or other taxing subdivision of
any State, not including those assessed against local benefits;

Fourth. Losses actually sustained during the year, incurred in
his business or trade, or arising from fires, storms, shipwreck, or
other casualty, and from theft, when such losses are not com-
pensated for by insurance or otherwise: Provided, That for the
purpose of ascertaining the loss sustained from the sale or other
disposition of property, real, personal, or mixed, acquired before
March first, nineteen hundred and thirteen, the fair market

270 act of 1916

price or value of such property as of March first, nineteen hun-
dred and thirteen, shall be the basis for determining the amount
of such loss sustained;

Fifth. In transactions entered into for profit but not con-
nected with his business or trade, the losses actually sustained
therein during the year to an amount not exceeding the profits
arising therefrom;

Sixth. Debts due to the taxpayer actually ascertained to be
worthless and charged off within the year;

Seventh. A reasonable allowance for the exhaustion, wear
and tear of property arising out of its use or employment in the
business or trade;

Eighth, (a) In the case of oil and gas wells a reasonable
allowance for actual reduction in flow and production to be
ascertained not by the flush flow, but by the settled production
or regular flow; (b) in the case of mines a reasonable allowance
for depletion thereof not to exceed the market value in the mine
of the product thereof, which has been mined and sold during
the year for which the return and computation are made, such
reasonable allowance to be made in the case of both (a) and (b)
under rules and regulations to be prescribed by the Secretary of
the Treasury: Provided, That when the allowances authorized in
(a) and (b) shall equal the capital originally invested, or in case
of purchase made prior to March first, nineteen hundred and
thirteen, the fair market value as of that date, no further allow-
ance shall be made. No deduction shall be allowed for any
amount paid out for new buildings, permanent improvements,
or betterments, made to increase the value of any property or
estate, and no deduction shall be made for any amount of ex-
pense of restoring property or making good the exhaustion
thereof for which an allowance is or has been made.

CREDITS ALLOWED.

(b) For the purpose of the normal tax only, the income
embraced in a personal return shall be credited with the amount
received as dividends upon the stock or from the net earnings of
any corporation, joint-stock company or association, trustee, or

act of 1916 271

insurance company, which is taxable upon its net income as
hereinafter provided;

(c) A like credit shall be allowed as to the amount of income,
the normal tax upon which has been paid or withheld for pay-
ment at the source of the income under the provisions of this
title.

NONRESIDENT ALIENS.

Sec. 6. That in computing net income in the case of a non-
resident alien —

(a) For the purpose of the tax there shall be allowed as
deductions —

First. The necessary expenses actually paid in carrying on
any business or trade conducted by him within the United
States, not including personal, living, or family expenses;

Second. The proportion of all interest paid within the year by
such person on his indebtedness which the gross amount of his
income for the year derived from sources within the United
States bears to the gross amount of his income for the year
derived from all sources within and without the United States,
but this deduction shall be allowed only if such person includes
in the return required by section eight all the information neces-
sary for its calculation; i

Third. Taxes paid within the year imposed by the authority
of the United States, or its Territories, or possessions, or under
the authority of any State, county, school district, or munici-
pality, or other taxing subdivision of any State, paid within the
United States, not including those assessed against local bene-
fits;

Fourth. Losses actually sustained during the year, incurred in
business or trade conducted by him within the United States,
and losses of property within the United States arising from fires,
storms, shipwreck, or other casualty, and from theft, when such
losses are not compensated for by insurance or otherwise:
Provided, That for the purpose of ascertaining the amount of
such loss or losses sustained in trade, or speculative transactions
not in trade, from the same or any kind of property acquired
before March first, nineteen hundred and thirteen, the fair

272 act op 1916

market price or value of such property as of March first, nine-
teen hundred and thirteen, shall be the basis for determining
the amount of such loss or losses sustained;

Fifth. In transactions entered into for profit but not con-
nected with his business or trade, the losses actually sustained
therein during the year to an amount not exceeding the profits
arising therefrom in the United States;

Sixth. Debts arising in the course of business or trade con-
ducted by him within the United States due to the taxpayer
actually ascertained to be worthless and charged off within
the year;

Seventh. A reasonable allowance for the exhaustion, wear
and tear of property within the United States arising out of its
use or employment in the business or trade; (a) in the case of oil
and gas wells a reasonable allowance for actual reduction in flow
and production to be ascertained not by the flush flow, but by
the settled production or regular flow; (b) in the case of mines a
reasonable allowance for depletion thereof not to exceed the
market value in the mine of the product thereof which has been
mined and sold during the year for which the return and compu-
tation are made, such reasonable allowance to be made in the
case of both (a) and (b) under rules and regulations to be pre-
scribed by the Secretary of the Treasury: Provided, That when
the allowance authorized in (a) and (b) shall equal the capital
originally invested, or in case of purchase made prior to March
first, nineteen hundred and thirteen, the fair market value as
of that date, no further allowance shall be made. No deduction
shall be allowed for any amount paid out for new buildings,
permanent improvements, or betterments, made to increase the
value of any property or estate, and no deduction shall be made
for any amount of expense of restoring property or making good
the exhaustion thereof for which an allowance is or has been
made.

(b) There shall also be allowed the credits specified by sub-
divisions (b) and (c) of section five.

act of 1916 273

PERSONAL EXEMPTION.

Sec. 7. (a) That for the purpose of the normal tax only, there
shall be allowed as an exemption in the nature of a deduction
from the amount of the net income of each of said persons,
ascertained as provided herein, the sum of $3,000, plus $1,000
additional if the person making the return be a head of a family
or a married man with a wife living with him, or plus the sum of
$1,000 additional if the person making the return be a married
woman with a husband living with her; but in no event shall this
additional exemption of $1,000 be deducted by both a husband
and a wife: Provided, That only one deduction of $4,000 shall be
made from the aggregate income of both husband and wife when
living together: Provided further, That guardians or trustees
shall be allowed to make this personal exemption as to income
derived from the property of which such guardian or trustee has
charge in favor of each ward or cestui que trust: Provided further,
That in no event shall a ward or cestui que trust be allowed a
greater personal exemption than $3,000, or, if married, $4,000, as
provided in this paragraph, from the amount of net income
received from all sources. There shall also be allowed an exemp-
tion from the amount of the net income of estates of deceased
persons during the period of administration or settlement,
and of trust or other estates the income of which is not distrib-
uted annually or regularly under the provisions of paragraph
(b), section two, the sum of $3,000, including such deductions
as are allowed under section five.

(b) A nonresident alien individual may receive the benefit of
the exemption provided for in this section only by filing or
causing to be filed with the collector of internal revenue a true
and accurate return of his total income, received from all sources,
corporate or otherwise, in the United States, in the manner
prescribed by this title; and in case of his failure to file such
return the collector shall collect the tax on such income, and all
property belonging to such nonresident alien individual shall
be liable to distraint for the tax.

274 act of 1916

RETURNS.

Sec. 8. (a) The tax shall be computed upon the net income,
as thus ascertained, of each person subject thereto, received in
each preceding calendar year ending December thirty-first.

(b) On or before the first day of March, nineteen hundred and
seventeen, and the first day of March in each year thereafter, a
true and accurate return under oath shall be made by each
person of lawful age, except as hereinafter provided, having a
net income of $3,000 or over for the taxable year to the collector
of internal revenue for the district in which such person has his
legal residence or principal place of business, or if there be no
legal residence or place of business in the United States, then
with the collector of internal revenue at Baltimore, Maryland,
in such form as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, shall prescribe, setting
forth specifically the gross amount of income from all separate
sources, and from the total thereof deducting the aggregate
items of allowances herein authorized: Provided, That the
Commissioner of Internal Revenue shall have authority to
grant a reasonable extension of time, in meritorious cases, for
filing returns of income by persons residing or traveling abroad
who are required to make and file returns of income and who
are unable to file said returns on or before March first of each
year: Provided further, That the aforesaid return may be made
by an agent when by reason of illness, absence, or nonresidence
the person liable for said return is unable to make and render the
same, the agent assuming the responsibility of making the
return and incurring penalties provided for erroneous, false,
or fraudulent return.

(c) Guardians, trustees, executors, administrators, receivers,
conservators, and all persons, corporations, or associations
acting in any fiduciary capacity, shall make and render a return
of the income of the person, trust, or estate for whom or which
they act, and be subject to all the provisions of this title which
apply to individuals. Such fiduciary shall make oath that he has
sufficient knowledge of the affairs of such person, trust, or estate
to enable him to make such return and that the same is, to the

act op 1916 275

best of his knowledge and belief, true and correct, and be subject
to all the provisions of this title which apply to individuals:
Provided, That a return made by one of two or more joint
fiduciaries filed in the district where such fiduciary resides, under
such regulations as the Secretary of the Treasury may prescribe,
shall be a sufficient compliance with the requirements of this
paragraph.

(d) AH persons, firms, companies, copartnerships, corpora-
tions, joint-stock companies, or associations, and insurance
companies, except as hereinafter provided, in whatever capacity
acting, having the control, receipt, disposal, or payment of fixed
or determinable annual or periodical gains, profits, and income of
another individual subject to tax, shall in behalf of such person
deduct and withhold from the payment an amount equivalent
to the normal tax upon the same and make and render a return,
as aforesaid, but separate and distinct, of the portion of the in-
come of each person from which the normal tax has been thus
withheld, and containing also the name and address of such
person or stating that the name and address or the address, as
the case may be, are unknown: Provided, That the provision
requiring the normal tax of individuals to be deducted and
withheld at the source of the income shall not be construed to
require the withholding of such tax according to the two per
centum normal tax rate herein prescribed until on and after
January first, nineteen hundred and seventeen, and the law
existing at the time of the passage of this Act shall govern the
amount withheld or to be withheld at the source until January
first, nineteen hundred and seventeen.

That in either case mentioned in subdivisions (c) and (d) of
this section no return of income not exceeding $3,000 shall be
required, except as in this title provided.

(e) Persons carrying on business in partnership shall be liable
for income tax only in their individual capacity, and the share of
the profits of the partnership to which any taxable partner would
be entitled if the same were divided, whether divided or other-
wise, shall be returned for taxation and the tax paid under the
provisions of this title: Provided, That from the net distributive
interests on which the individual members shall be liable for tax,

276 act of 1916

normal and additional, there shall be excluded their propor-
tionate shares received from interest on the obligations of a
State or any political or taxing subdivision thereof, and upon
the obligations of the United States and its possessions, and all
taxes paid to the United States or to any possession thereof, or
to any State, county, or taxing subdivision of a State, and
that for the purpose of computing the normal tax there shall be
allowed a credit, as provided by section five, subdivision (b), for
their proportionate share of the profits derived from dividends.
And such partnership, when requested by the Commissioner of
Internal Revenue, or any district collector, shall render a correct
return of the earnings, profits, and income of the partnership,
except income exempt under section four of this Act, setting
forth the item of the gross income and the deductions and credits
allowed by this title, and the names and addresses of the indi-
viduals who would be entitled to the net earnings, profits, and
income, if distributed.

(f) In every return shall be included the income derived from
dividends on the capital stock or from the net earnings of any
corporation, joint-stock company or association, or insurance
company, except that in the case of nonresident aliens such
income derived from sources without the United States shall
not be included.

(g) An individual keeping accounts upon any basis other than
that of actual receipts and disbursements, unless such other
basis does not clearly reflect his income, may, subject to regula-
tions made by the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, make his return upon
the basis upon which his accounts are kept, in which case the
tax shall be computed upon his income as so returned.

ASSESSMENT AND ADMINISTRATION.

Sec. 9. (a) That all assessments shall be made by the Com-
missioner of Internal Revenue and all persons shall be notified of
the amount for which they are respectively liable on or before
the first day of June of each successive year, and said amounts
shall be paid on or before the fifteenth day of June, except in

act op 1916 277

cases of refusal or neglect to make such return and in cases of
erroneous, false, or fraudulent returns, in which cases the Com-
missioner of Internal Revenue shall, upon the discovery thereof,
at any time within three years after said return is due, or has been
made, make a return upon information obtained as provided for
in this title or by existing law, or require the necessary correc-
tions to be made, and the assessment made by the Commissioner
of Internal Revenue thereon shall be paid by such person or
persons immediately upon notification of the amount of such
assessment; and to any sum or sums due and unpaid after the
fifteenth day of June in any year, and for ten days after notice
and demand thereof by the collector, there shall be added the
sum of five per centum on the amount of tax unpaid, and interest
at the rate of one per centum per month upon Said tax from the
time the same became due, except from the estates of insane,
deceased, or insolvent persons.

(b) All persons, firms, copartnerships, companies, corpora-
tions, joint-stock companies, or associations, and insurance
companies, in whatever capacity acting, including lessees or
mortgagors of real or personal property, trustees acting in any
trust capacity, executors, administrators, receivers, conserva-
tors, employers, and all officers and employees of the United
States having the control, receipt, custody, disposal, or payment
of interest, rent, salaries, wages, premiums, annuities, compen-
sation, remuneration, emoluments, or other fixed or determin-
able annual or periodical gains, profits, and income of another
person, exceeding $3,000 for any taxable year, other than income
derived from dividends on capital stock, or from the net earnings
of corporations and joint-stock companies or associations, or
insurance companies, the income of which is taxable under this
title, who are required to make and render a return in behalf of
another, as provided herein, to the collector of his, her, or its
district, are hereby authorized and required to deduct and with-
hold from such annual or periodical gains, profits, and income
such sum as will be sufficient to pay the normal tax imposed
thereon by this title, and shall pay the amount withheld to the
officer of the United States Government authorized to receive
the same; and they are each hereby made personally liable for

278 act of 1916

such tax, and they are each hereby indemnified against every
person, corporation, association, or demand whatsoever for all
payments which they shall make in pursuance and by virtue
of this title.

In all cases where the income tax of a person is withheld and
deducted and paid or to be paid at the source, such person shall
not receive the benefit of the personal exemption allowed in
section seven of this title except by an application for refund of
the tax unless he shall, not less than thirty days prior to the day
on which the return of his income is due, file with the person who
is required to withhold and pay tax for him a signed notice in
writing claiming the benefit of such exemption, and thereupon
no tax shall be withheld upon the amount of such exemption:
Provided, That if any person for the purpose of obtaining any
allowance or reduction by virtue of a claim for such exemption,
either for himself or for any other person, knowingly makes any
false statement or false or fraudulent representation, he shall
be liable to a penalty of not exceeding $300.

And where the income tax is paid or to be paid at the source,
no person shall be allowed the benefit of any deduction provided
for in sections five or six of this title unless he shall, not less
than thirty days prior to the day on which the return of his
income is due, either (1) file with the person who is required to
withhold and pay tax for him a true and correct return of his
gains, profits, and income from all other sources, and also the
deductions asked for, and the showing thus made shall then
become a part of the return to be made in his behalf by the per-
son required to withhold and pay the tax, or (2) likewise make
application for deductions to the collector of the district in which
return is made or to be made for him: Provided, That when any
amount allowable as a deduction is known at the time of receipt
of fixed annual or periodical income by an individual subject
to tax, he may file with the person, firm, or corporation making
the payment a certificate, under penalty for false claim, and in
such form as shall be prescribed by the Commissioner of Internal
Revenue, stating the amount of such deduction and making a
claim for an allowance of the same against the amount of tax
otherwise required to be deducted and withheld at the source of

act of 1916 279

the income, and such certificate shall likewise become a part of
the return to be made in his behalf.

If such person is absent from the United States, or is unable
owing to serious illness to make the return and application above
provided for, the return and application may be made by an
agent, he making oath that he has sufficient knowledge of the
affairs and property of his principal to enable him to make a full
and complete return, and that the return and application made
by him are full and complete.

(c) The amount of the normal tax hereinbefore imposed shall
be deducted and withheld from fixed or determinable annual or
periodical gains, profits, and income derived from interest upon
bonds and mortgages, or deeds of trust or other similar obliga-
tions of corporations, joint-stock companies, associations, and
insurance companies, whether payable annually or at shorter or
longer periods, although such interest does not amount to $3,000,
subject to the provisions of this title requiring the tax to be
withheld at the source and deducted from annual income and
returned and paid to the Government.

(d) And likewise the amount of such tax shall be deducted
and withheld from coupons, checks, or bills of exchange for or in
payment of interest upon bonds of foreign countries and upon
foreign mortgages or like obligations (not payable in the United
States), and also from coupons, checks, or bills of exchange for
or in payment of any dividends upon the stock or interest upon
the obligations of foreign corporations, associations, and insur-
ance companies engaged in business in foreign countries.

And the tax in such cases shall be withheld, deducted, and
returned for and in behalf of any person subject to the tax
hereinbefore imposed, although such interest or dividends do
not exceed $3,000, by (1) any banker or person who shall sell or
otherwise realize coupons, checks, or bills of exchange drawn or
made in payment of any such interest or dividends (not payable
in the United States), and (2) any person who shall obtain
payment (not in the United States), in behalf of another of such
dividends and interest by means of coupons, checks, or bills of
exchange, and also (3) any dealer in such coupons who shall
purchase the same for any such dividends or interest (not pay-

280 act op 1916

able in the United States), otherwise than from a banker or
another dealer in such coupons.

(e) Where the tax is withheld at the source, the benefit of the
exemption and the deductions allowable under this title may be
had by complying with the foregoing provisions of this section.

(f ) All persons, firms, or corporations undertaking as a matter
of business or for profit the collection of foreign payments of such
interest or dividends by means of coupons, checks, or bills of
exchange shall obtain a license from the Commissioner of In-
ternal Revenue, and shall be subject to such regulations enabling
the Government to ascertain and verify the due withholding and
payment of the income tax required to be withheld and paid as
the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, shall prescribe; and any person who
shall knowingly undertake to collect such payments as aforesaid
without having obtained a license therefor, or without complying
with such regulations, shall be deemed guilty of a misdemeanor
and for each offense be fined in a sum not exceeding $5,000, or
imprisoned for a term not exceeding one year, or both, in the
discretion of the court.

(g) The tax herein imposed upon gains, profits, and income
not falling under the foregoing and not returned and paid by
virtue of the foregoing shall be assessed by personal return under
rules and regulations to be prescribed by the Commissioner of
Internal Revenue and approved by the Secretary of the Treas-
ury. The intent and purpose of this title is that all gains, profits,
and income of a taxable class, as defined by this title, shall be
charged and assessed with the corresponding tax, normal and
additional, prescribed -by this title, and said tax shall be paid by
the owner of such income, or the proper representative having
the receipt, custody, control, or disposal of the same. For the
purpose of this title ownership or liability shall be determined
as of the year for which a return is required to be rendered.

The provisions of this title relating to the deduction and pay-
ment of the tax at the source of income shall only apply to the
normal tax hereinbefore imposed upon individuals.

act of 1916 281

Part II. — Corporations.

Sec. 10. That there shall be levied, assessed, collected, and
paid annually upon the total net income received in the preced-
ing calendar year from all sources by every corporation, joint-
stock company or association, or insurance company, organized
in the United States, no matter how created or organized but not
including partnerships, a tax of two per centum upon such
income; and a like tax shall be levied, assessed, collected, and
paid annually upon the total net income received in the preced-
ing calendar year from all sources within the United States
by every corporation, joint-stock company or association, or
insurance company organized, authorized, or existing under the
laws of any foreign country, including interest on bonds, notes,
or other interest-bearing obligations of residents, corporate or
otherwise, and including the income derived from dividends on
capital stock or from net earnings of resident corporations,
joint-stock companies or associations, or insurance companies
whose net income is taxable under this title: Provided, That the
term "dividends" as used in this title shall be held to mean any
distribution made or ordered to be made by a corporation,
joint-stock company, association, or insurance company, out of
its earnings or profits accrued since March first, nineteen hun-
dred and thirteen, and payable to its shareholders, whether in
cash or in stock of the corporation, joint-stock company, asso-
ciation, or insurance company, which stock dividend shall be
considered income, to the amount of its cash value.

The foregoing tax rate shall apply to the total net income
received by every taxable corporation, joint-stock company or
association, or insurance company in the calendar year nineteen
hundred and sixteen and in each year thereafter, except that if
it has fixed its own fiscal year under the provisions of existing
law, the foregoing rate shall apply to the proportion of the total
net income returned for the fiscal year ending prior to December
thirty-first, nineteen hundred and sixteen, which the period
between January first, nineteen hundred and sixteen, and the
end of such fiscal year bears to the whole of such fiscal year, and
the rate fixed in Section II of the Act approved October third,

282 act op 1916

nineteen hundred and thirteen, entitled "An Act to reduce
tariff duties and to provide revenue for the Government, and
for other purposes," shall apply to the remaining portion of the
total net income returned for such fiscal year.

For the purpose of ascertaining the gain derived or loss
sustained from the sale or other disposition by a corporation,
joint-stock company or association, or insurance company, of
property, real, personal, or mixed, acquired before March first,
nineteen hundred and thirteen, the fair market price or value of
such property as of March first, nineteen hundred and thirteen,
shall be the basis for determining the amount of such gain
derived or loss sustained.

CONDITIONAL AND OTHER EXEMPTIONS.

Sec. 11. (a) That there shall not be taxed under this title any
income received by any —

First. Labor, agricultural, or horticultural organization;

Second. Mutual savings bank not having a capital stock
represented by shares;

Third. Fraternal beneficiary society, order, or association,
operating under the lodge system or for the exclusive benefit of
the members of a fraternity itself operating under the lodge
system, and providing for the payment of life, sick, accident, or
other benefits to the members of such society, order, or asso-
ciation or their dependents;

Fourth. Domestic building and loan association and coopera-
tive banks without capital stock organized and operated for
mutual purposes and without profit;

Fifth. Cemetery company owned and operated exclusively
for the benefit of its members;

Sixth. Corporation or association organized and operated ex-
clusively for religious, charitable, scientific, or educational pur-
poses, no part of the net income of which inures to the benefit of
any private stockholder or individual;

Seventh. Business league, chamber of commerce, or board of
trade, not organized for profit and no part of the net income of
which inures to the benefit of any private stockholder or indi-
vidual;

act of 1916 283

Eighth. Civic league or organization not organized for profit
but operated exclusively for the promotion of social welfare;

Ninth. Club organized and operated exclusively for pleasure,
recreation, and other nonprofitable purposes, no part of the net
income of which inures to the benefit of any private stockholder
or member;

Tenth. Farmers' or other mutual hail, cyclone, or fire insur-
ance company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a purely
local character, the income of which consists solely of assess-
ments, dues, and fees collected from members for the sole pur-
pose of meeting its expenses;

Eleventh. Farmers', fruit growers', or like association, organ-
ized and operated as a sales agent for the purpose of marketing
the products of its members and turning back to them the pro-
ceeds of sales, less the necessary selling expenses, on the basis of
the quantity of produce furnished by them;

Twelfth. Corporation or association organized for the exclu-
sive purpose of holding title to property, collecting income
therefrom, and turning over the entire amount thereof, less
expenses, to an organization which itself is exempt from the tax
imposed by this title; or

Thirteenth. Federal land banks and national farm-loan asso-
ciations as provided in section twenty-six of the Act approved
July seventeenth, nineteen hundred and sixteen, entitled "An
Act to provide capital for agricultural development, to create
standard forms of investment based upon farm mortgage, to
equalize rates of interest upon farm loans, to furnish a market
for United States bonds, to create Government depositaries and
financial agents for the United States, and for other purposes."

Fourteenth. Joint-stock land banks as to income derived from
bonds or debentures of other joint-stock land banks or any
Federal land bank belonging to such joint-stock land bank.

(b) There shall not be taxed under this title any income de-
rived from any public utility or from the exercise of any essen-
tial governmental function accruing to any State, Territory, or
the District of Columbia, or any political subdivision of a State
or Territory, nor any income apcruing to the government of the

284 act of 1916

Philippine Islands or Porto Rico, or of any political subdivision
of the Philippine Islands or Porto Rico: Provided, That whenever
any State, Territory, or the District of Columbia, or any political
subdivision of a State or Territory, has, prior to the passage of
this title, entered in good faith into a contract with any person or
corporation, the object and purpose of which is to acquire,
construct, operate, or maintain a public utility, no tax shall be
levied under the provisions of this title upon the income derived
from the operation of such public utility, so far as the payment
thereof will impose a loss or burden upon such State, Territory,
or the District of Columbia, or a political subdivision of a State
or Territory; but this provision is not intended to confer upon
such person or corporation any financial gain or exemption or to
relieve such person or corporation from the payment of a tax as
provided for in this title upon the part or portion of the said
income to which such person or corporation shall be entitled
under such contract.

DEDUCTIONS.

Sec. 12. (a) In the case of a corporation, joint-stock com-
pany or association, or insurance company, organized in the
United States, such net income shall be ascertained by deduct-
ing from the gross amount of its income received within the
year from all sources —

First. All the ordinary and necessary expenses paid within
the year in the maintenance and operation of its business and
properties, including rentals or other payments required to be
made as a condition to the continued use or possession of prop-
erty to which the corporation has not taken or is not taking title,
or in which it has no equity.

Second. All losses actually sustained and charged off within
the year and not compensated by insurance or otherwise, in-
cluding a reasonable allowance for the exhaustion, wear and tear
of property arising out of its use or employment in the business
or trade; (a) in the case of oil and gas wells a reasonable allow-
ance for actual reduction in flow and production to be ascer-
tained not by the flush flow, bi}t by the settled production or

act of 1916 285

regular flow; (b) in the case of mines a reasonable allowance for
depletion thereof not to exceed the market value in the mine of
the product thereof which has been mined and sold during the
year for which the return and computation are made, such
reasonable allowance to be made in the case of both (a) and (b)
under rules and regulations to be prescribed by the Secretary of
the Treasury: Provided, That when the allowance authorized in
(a) and (b) shall equal the capital originally invested, or in case
of purchase made prior to March first, nineteen hundred and
thirteen, the fair market value as of that date, no further allow-
ance shall be made; and (c) in the case of insurance companies,
the net addition, if any, required by law to be made within the
year to reserve funds and the sums other than dividends paid
within the year on policy and annuity contracts: Provided, That
no deduction shall be allowed for any amount paid out for new
buildings, permanent improvements, or betterments made to
increase the value of any property or estate, and no deduction
shall be made for any amount of expense of restoring property or
making good the exhaustion thereof for which an allowance is or
has been made: Provided further, That mutual fire and mutual
employers' liability and mutual workmen's compensation and
mutual casualty insurance companies requiring their members to
make premium deposits to provide for losses and expenses shall
not return as income any portion of the premium deposits re-
turned to their policyholders, but shall return as taxable income
all income received by them from all other sources plus such
portions of the premium deposits as are retained by the com-
panies for purposes other than the payment of losses and ex-
penses and reinsurance reserves: Provided further, That mutual
marine insurance companies shall include in their return of gross
income gross premiums collected and received by them less
amounts paid for reinsurance, but shall be entitled to include in
deductions from gross income amounts repaid to policyholders
on account of premiums previously paid by them and interest
paid upon such amounts between the ascertainment thereof and
the payment thereof, and life insurance companies shall not
include as income in any year such portion of any actual pre-
mium received from any individual policyholder as shall have

286 act of 1916

been paid back or credited to such individual policyholder, or
treated as an abatement of premium of such individual policy-
holder, within such year;

Third. The amount of interest paid within the year on its
indebtedness to an amount . of such indebtedness not in excess of
the sum of (a) the entire amount of the paid-up capital stock
outstanding at the close of the year, or, if no capital stock, the
entire amount of capital employed in the business at the close of
the year, and (b) one-half of its interest-bearing indebtedness
then outstanding: Provided, That for the purpose of this title
preferred capital stock shall not be considered interest-bearing
indebtedness, and interest or dividends paid upon this stock
shall not be deductible from gross income: Provided further,
That in cases wherein shares of capital stock are issued without
par or nominal value, the amount of paid-up capital stock,
within the meaning of this section, as represented by such shares,
will be the amount of cash, or its equivalent, paid or transferred
to the corporation as a consideration for such shares: Provided
further, That in the case of indebtedness wholly secured by
property collateral, tangible or intangible, the subject of sale or
hypothecation in the ordinary business of such corporation,
joint-stock company or association as a dealer only in the prop-
erty constituting such collateral, or in loaning the funds thereby
procured, the total interest paid by such corporation, company,
or association within the year on any such indebtedness may be
deducted as a part of its expenses of doing business, but interest
on such indebtedness shall only be deductible on an amount
of such indebtedness not in excess of the actual value of such
property collateral: Provided further, That in the case of bonds or
other indebtedness, which have been issued with a guaranty that
the interest payable thereon shall be free from taxation, no de-
duction for the payment of the tax herein imposed, or any other
tax paid pursuant to such guaranty, shall be allowed; and in the
case of a bank, banking association, loan or trust company,
interest paid within the year on deposits or on moneys received
for investment and secured by interest-bearing certificates of
indebtedness issued by such bank, banking association, loan
or trust company;

act of 1916 287

Fourth. Taxes paid within the year imposed by the authority
of the United States, or its Territories, or possessions, or any
foreign country, or under the authority of any State, county,
school district, or municipality, or other taxing subdivision of
any State, not including those assessed against local benefits.

(b) In the case of a corporation, joint-stock company or
association, or insurance company, organized, authorized, or
existing under the laws of any foreign country, such net income
shall be ascertained by deducting from the gross amount of its
income received within the year from all sources within the
United States —

First. All the ordinary and necessary expenses actually paid
within the year out of earnings in the maintenance and operation
of its business and property within the United States, including
rentals or other payments required to be made as a condition to
the continued use or possession of property to which the corpo-
ration has not taken or is not taking title, or in which it has no
equity.

Second. All losses actually sustained within the year in busi-
ness or trade conducted by it within the United States and not
compensated by insurance or otherwise, including a reasonable
allowance for the exhaustion, wear and tear of property arising
out of its use or employment in the business or trade; (a) and in
the case (a) of oil and gas wells a reasonable allowance for actual
reduction in flow and production to be ascertained not by the
flush flow, but by the settled production or regular flow; (b) in
the case of mines a reasonable allowance for depletion thereof
not to exceed the market value in the mine of the product
thereof which has been mined and sold during the year for which
the return and computation are made, such reasonable allow-
ance to be made in the case of both (a) and (b) under rules and
regulations to be prescribed by the Secretary of the Treasury:
Provided, That when the allowance, authorized in (a) and (b)
shall equal the capital originally invested, or in case of pur-
chase made prior to March first, nineteen hundred and thirteen,
the fair market value as of that date, no further allowance shall
be made; and (c) in the case of insurance companies, the net
addition, if any, required by law to be made within the year to

288 act of 1916

reserve funds and the sums other than dividends paid within
the year on policy and annuity contracts: Provided, That no
deduction shall be allowed for any amount paid out for new
buildings, permanent improvements, or betterments, made to
increase the value of any property or estate, and no deduction
shall be made for any amount of expense of restoring property or
making good the exhaustion thereof for which an allowance is or
has been made: Provided further, That mutual fire and mutual
employers' liability and mutual workmen's compensation and
mutual casualty insurance companies requiring their members
to make premium deposits to provide for losses and expenses
shall not return as income any portion of the premium deposits
returned to their policyholders, but shall return as taxable in-
come all income received by them from all other sources plus
such portions of the premium deposits as are retained by the
companies for purposes other than the payment of losses and
expenses and reinsurance reserves: Provided further, That
mutual marine insurance companies shall include in their return
of gross income gross premiums collected and received by them
less amounts paid for reinsurance, but shall be entitled to include
in deductions from gross income amounts repaid to policyholders
on account of premiums previously paid by them, and interest
paid upon such amounts between the ascertainment thereof and
the payment thereof, and life insurance companies shall not
include as income in any year such portion of any actual pre-
mium received from any individual policyholder as shall have
been paid back or credited to such individual policyholder, or
treated as an abatement of premium of such individual policy-
holder, within such year;

Third. The amount of interest paid within the year on its
indebtedness to an amount of such indebtedness not in excess of
the proportion of the sum of (a) the entire amount of the paid-up
capital stock outstanding at the close of the year, or, if no capital
stock, the entire amount of the capital employed in the business
at the close of the year, and (b) one-half of its interest-bearing
indebtedness then outstanding, which the gross amount of its
income for the year from business transacted and capital in-
vested within the United States bears to the gross amount of its

act of 1916 289

income derived from all sources within and without the United
States: Provided, That in the case of bonds or other indebtedness
which have been issued with a guaranty that the interest pay-
able thereon shall be free from taxation, no deduction for the
payment of the tax herein imposed or any other tax paid pur-
suant to such guaranty shall be allowed; and in case of a bank,
banking association, loan or trust company, or branch thereof,
interest paid within the year on deposits by or on moneys
received for investment from either citizens or residents of the
United States and secured by interest-bearing certificates of
indebtedness issued by such bank, banking association, loan or
trust company, or branch thereof;

Fourth. Taxes paid within the year imposed by the authority
of the United States, or its Territories, or possessions, or under
the authority of any State, county, school district, or munici-
pality, or other taxing subdivision of any State, paid within the
United States, not including those assessed against local benefits;

(c) In the case of assessment insurance companies, whether
domestic or foreign, the actual deposit of sums with State or
Territorial officers, pursuant to law, as additions to guarantee or
reserve funds shall be treated as being payments required by law
to reserve funds.

BETUBNS.

Sec. 13. (a) The tax shall be computed upon the net income,
as thus ascertained, received within each preceding calendar
year ending December thirty-first: Provided, That any corpora-
tion, joint-stock company or association, or insurance company,
subject to this tax, may designate the last day of any month in
the year as the day of the closing of its fiscal year and shall be
entitled to have the tax payable by it computed upon the basis
of the net income ascertained as herein provided for the year
ending on the day so designated in the year preceding, the date
of assessment instead of upon the basis of the net income for the
calendar year preceding the date of assessment; and it shall give
notice of the day it has thus designated as the closing of its fiscal
year to the collector of the district in which its principal business

290 act of 1916

office is located at any time not less than thirty days prior to the
first day of March of the year in which its return would be filed
if made upon the basis of the calendar year;

(b) Every corporation, joint-stock company or association, or
insurance company, subject to the tax herein imposed, shall, on
or before the first day of March, nineteen hundred and seven-
teen, and the first day of March in each year thereafter, or, if it
has designated a fiscal year for the computation of its tax, then
within sixty days after the close of such fiscal year ending prior
to December thirty-first, nineteen hundred and sixteen, and the
close of each such fiscal year thereafter, render a true and
accurate return of its annual net income in the manner and form
to be prescribed by the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, and containing
such facts, data, and information as are appropriate and in the
opinion of the commissioner necessary to determine the correct-
ness of the net income returned and to carry out the provisions
of this title. The return shall be sworn to by the president, vice
president, or other principal officer, and by the treasurer or
assistant treasurer. The return shall be made to the collector of
the district in which is located the principal office of the corpo-
ration, company, or association, where are kept its books of
account and other data from which the return is prepared, or in
the case of a foreign corporation, company, or association, to the
collector of the district in which is located its principal place of
business in the United States, or if it have no principal place of
business, office, or agency in the United States, then to the
collector of internal revenue at Baltimore, Maryland. All such
returns shall as received be transmitted forthwith by the col-
lector to the Commissioner of Internal Revenue;

(c) In cases wherein receivers, trustees in bankruptcy, or
assignees are operating the property or business of corporations,
joint-stock companies or associations, or insurance companies,
subject to tax imposed by this title, such receivers, trustees, or
assignees shall make returns of net income as and for such cor-
porations, joint-stock companies or associations, and insurance
companies, in the same manner and form as such organizations
are hereinbefore required to make returns, and any income tax

act of 1916 291

due on the basis of such returns made by receivers, trustees, or
assignees shall be assessed and collected in the same manner as if
assessed directly against the organizations of whose businesses
or properties they have custody and control;

(d) A corporation, joint-stock company or association, or
insurance company, keeping accounts upon any basis other than
that of actual receipts and disbursements, unless such other
basis does not clearly reflect its income, may, subject to regula-
tions made by the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, make its return upon
the basis upon which its accounts are kept, in which case the tax
shall be computed upon its income as so returned;

(e) All the provisions of this title relating to the tax author-
ized and required to be deducted and withheld and paid to the
officer of the United States Government authorized to receive
the same from the income of nonresident alien individuals from
sources within the United States shall be made applicable to
incomes derived from interest upon bonds and mortgages or
deeds of trust or similar obligations of domestic or other resident
corporations, joint-stock companies or associations, and insur-
ance companies by nonresident alien firms, copartnerships,
companies, corporations, joint-stock companies or associations,
and insurance companies not engaged in business or trade within
the United States and not having any office or place of business
therein;

(f) Likewise, all the provisions of this title relating to the tax
authorized and required to be deducted and withheld and paid to
the officer of the United States Government authorized to receive
the same from the income of nonresident alien individuals from
sources within the United States shall be made applicable to
income derived from dividends upon the capital stock or from
the net earnings of domestic or other resident corporations,
joint-stock companies or associations, and insurance companies
by nonresident alien companies, corporations, joint-stock com-
panies or associations, and insurance companies not engaged in
business or trade within the United States and not having any
office or place of business therein.

292 act of 1916

assessment and administration.

Sec. 14. (a) All assessments shall be made and the several
corporations, joint-stock companies or associations, and insur-
ance companies shall be notified of the amount for which they
are respectively liable on or before the first day of June of each
successive year, and said assessment shall be paid on or before
the fifteenth day of June: Provided, That every corporation,
joint-stock company or association, and insurance company,
computing taxes upon the income of the fiscal year which it may
designate in the manner hereinbefore provided, shall pay the
taxes due under its assessment within one hundred and five days
after the date upon which it is required to file its list or return of
income for assessment; except in cases of refusal or neglect to
make such return, and in cases of erroneous, false, or fraudulent
returns, in which cases the Commissioner of Internal Revenue
shall, upon the discovery thereof, at any time within three
years after said return is due, make a return upon information
obtained as provided for in this title or by existing law; and the
assessment made by the Commissioner of Internal Revenue
thereon shall be paid by such corporation, joint-stock company
or association, or insurance company immediately upon notifi-
cation of the amount of such assessment; and to any sum or sums
due and unpaid after the fifteenth day of June in any year, or
after one hundred and five days from the date on which the
return of income is required to be made by the taxpayer, and
after ten days' notice and demand thereof by the collector, there
shall be added the sum of five per centum on the amount of tax
unpaid and interest at the rate of one per centum per month
upon said tax from the time the same becomes due: Provided,
That upon the examination of any return of income made
pursuant to this title, the Act of August fifth, nineteen hundred
and nine, entitled, "An Act to provide revenue, equalize duties
and encourage the industries of the United States, and for other
purposes," and the Act of October third, nineteen hundred and
thirteen, entitled, "An Act to reduce tariff duties and to provide
revenue for the Government, and for other purposes," if it shall
appear that amounts of tax have been paid in excess of those

act of 1916 293

properly due, the taxpayer shall be permitted to present a claim
for refund thereof notwithstanding the provisions of section
thirty-two hundred and twenty-eight of the Revised Statutes;

(b) When the assessment shall be made, as provided in this
title, the returns, together with any corrections thereof which
may have been made by the commissioner, shall be filed in the
office of the Commissioner of Internal Revenue and shall con-
stitute public records and be open to inspection as such: Pro-
vided, That any and all such returns shall be open to inspection
only upon the order of the President, under rules and regulations
to be prescribed by the Secretary of the Treasury and approved
by the President: Provided further, That the proper officers of
any State imposing a general income tax may, upon the request
of the governor thereof, have access to said returns or to an
abstract thereof, showing the name and income of each such
corporation, joint-stock company or association, or insurance
company, at such times and in such manner as the Secretary of
the Treasury may prescribe;

(c) If any of the corporations, joint-stock companies or
associations, or insurance companies aforesaid shall refuse or
neglect to make a return at the time or times hereinbefore
specified in each year, or shall render a false or fraudulent return,
such corporation, joint-stock company or association, or insur-
ance company shall be liable to a penalty of not exceeding
$10,000: Provided, That the Commissioner of Internal Revenue
shall have authority, in the case of either corporations or indi-
viduals, to grant a reasonable extension of time in meritorious
cases, as he may deem proper.

(d) That section thirty-two hundred and twenty-five of the
Revised Statutes of the United States be, and the same is
hereby, amended so as to read as follows:

"Sec. 3225. When a second assessment is made in case of any
list, statement, or return, which in the opinion of the collector or
deputy collector was false or fraudulent, or contained any
understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suit unless it is proved that
the said list, statement, or return was not false nor fraudulent
and did not contain any understatement or undervaluation; but

294 act op 1916

this section shall not apply to statements or returns made or to
be made in good faith under the laws of the United States
regarding annual depreciation of oil or gas wells and mines."

Pabt III. — General Administrative Provisions.

Sec. 15. That the word "State" or "United States" when
used in this title shall be construed to include any Territory, the
District of Columbia, Porto Rico, and the Philippine Islands,
when such construction is necessary to carry out its provisions.

Sec. 16. That sections thirty-one hundred and sixty-seven,
thirty-one hundred and seventy-two, thirty-one hundred and
seventy-three, and thirty-one hundred and seventy-six of the
Revised Statutes of the United States as amended are hereby
amended so as to read as follows:

"Sec. 3167. It shall be unlawful for any collector, deputy
collector, agent, clerk, or other officer or employee of the United
States to divulge or to make known in any manner whatever not
provided by law to any person the operations, style of work, or
apparatus of any manufacturer or producer visited by him in the
discharge of his official duties, or the amount or source of income,
profits, losses, expenditures, or any particular thereof, set forth
or disclosed in any income return, or to permit any income
return or copy thereof or any book containing any abstract or
particulars thereof to be seen or examined by any person except
as provided by law; and it shall be unlawful for any person to
print or publish in any manner whatever not provided by law
any income return or any part thereof or source of income,
profits, losses, or expenditures appearing in any income return;
and any offense against the foregoing provision shall be a mis-
demeanor and be punished by a fine not exceeding $1,000 or by
imprisonment not exceeding one year, or both, at the discretion
of the court; and if the offender be an officer or employee of the
United States he shall be dismissed from office or discharged
from employment.

" Sec. 3172. Every collector shall, from time to time, cause his
deputies to proceed through every part of his district and inquire
after and concerning all persons therein who are liable to pay

act of 1916 295

any internal-revenue tax, and all persons owning or having the
care and management of any objects liable to pay any tax, and
to make a list of such persons and enumerate said objects.

"Sec. 3173. It shall be the duty of any person, partnership,
firm, association, or corporation, made liable to any duty,
special tax, or other tax imposed by law, when not otherwise
provided for, (1) in case of a special tax, on or before the thirty-
first day of July in each year, (2) in case of income tax on or be-
fore the first day of March in each year, or on or before the last
day of the sixty-day period next following the closing date of the
fiscal year for which it makes a return of its income, and (3) in
other cases before the day on which the taxes accrue, to make a
list or return, verified by oath, to the collector or a deputy
collector of the district where located, of the articles or objects,
including the amount of annual income charged with a duty or
tax, the quantity of goods, wares, and merchandise, made or
sold and charged with a tax, the several rates and aggregate
amount, according to the forms and regulations to be prescribed
by the Commissioner of Internal Revenue, with the approval of
the Secretary of the Treasury, for which such person, partner-
ship, firm, association, or corporation is liable: Provided, That if
any person liable to pay any duty or tax, or owning, possessing,
or having the care or management of property, goods, wares, and
merchandise, article or objects liable to pay any duty, tax, or
license, shall fail to make and exhibit a list or return required by
law, but shall consent to disclose the particulars of any and all
the property, goods, wares, and merchandise, articles, and ob-
jects liable to pay any duty or tax, or any business or occupation
liable to pay any tax as aforesaid, then, and in that case, it shall
be the duty of the collector or deputy collector to make such list
or return, which, being distinctly read, consented to, and signed
and verified by oath by the person so owning, possessing, or
having the care and management as aforesaid, may be received
as the list of such person: Provided further, That in case no
annual list or return has been rendered by such person to the
collector or deputy collector as required by law, and the person
shall be absent from his or her residence or place of business at
the time the collector or a deputy collector shall call for the

296 act of 1916

annual list or return, it shall be the duty of such collector or
deputy collector to leave at such place of residence or business,
with some one of suitable age and discretion, if such be present,
otherwise to deposit in the nearest post office, a note or memo-
randum addressed to such person, requiring him or her to render
to such collector or deputy collector the list or return required
by law within ten days from the date of such note or memoran-
dum, verified by oath. And if any person, on being notified or
required as aforesaid, shall refuse or neglect to render such list
or return within the time required as aforesaid, or whenever any
person who is required to deliver a monthly or other return of
objects subject to tax fails to do so at the time required, or
delivers any return which, in the opinion of the collector, is
erroneous, false, or fraudulent, or contains any undervaluation
or understatement, or refuses to allow any regularly authorized
Government officer to examine the books of such person, firm, or
corporation, it shall be lawful for the collector to summon such
person, or any other person having possession, custody, or care
of books of account containing entries relating to the business of
such person, or any other person he may deem proper, to appear
before him and produce such books at a time and place named in
the summons, and to give testimony or answer interrogatories,
under oath, respecting any objects or income liable to tax or the
returns thereof. The collector may summon any person residing
or found within the State or Territory in which his district lies;
and when the person intended to be summoned does not reside
and can not be found within such State or Territory, he may
enter any collection district where such person may be found and
there make the examination herein authorized. And to this end
he may there exercise all the authority which he might lawfully
exercise in the district for which he was commissioned: Provided,
That 'person,' as used in this section, shall be construed to in-
clude any corporation, joint-stock company or association, or
insurance company when such construction is necessary to
carry out its provisions.

"Sec. 3176. If any person, corporation, company, or associa-
tion fails to make and file a return or list at the time prescribed
by law, or makes, willfully or otherwise, a false or fraudulent

act of 1916 297

return or list, the collector or deputy collector shall make the
return or list from his own knowledge and from such information
as he can obtain through testimony or otherwise. Any return or
list so made and subscribed by a collector or deputy collector
shall be prima facie good and sufficient for all legal purposes.

"If the failure to file a return or list is due to sickness or ab-
sence the collector may allow such further time, not exceeding
thirty days, for making and filing the return or list as he deems
proper.

"The Commissioner of Internal Revenue shall assess all
taxes, other than stamp taxes, as to which returns or lists are so
made by a collector or deputy collector. In case of any failure to
make and file a return or list within the time prescribed by law or
by the collector, the Commissioner of Internal Revenue shall
add to the tax fifty per centum of its amount except that, when
a return is voluntarily and without notice from the collector filed
after such time and it is shown that the failure to file it was due
to a reasonable cause and not to willful neglect, no such addition
shall be made to the tax. In case a false or fraudulent return or
list is willfully made, the Commissioner of Internal Revenue
shall add to the tax one hundred per centum of its amount.

"The amount so added to any tax shall be collected at the
same time and in the same manner and as part of the tax unless
the tax has been paid before the discovery of the neglect, falsity,
or fraud, in which case the amount so added shall be collected in
the same manner as the tax."

Sec. 17. That it shall be the duty of every collector of in-
ternal revenue, to whom any payment of any taxes is
made under the provisions of this title, to give to the person
making such payment a full written or printed receipt, ex-
pressing the amount paid and the particular account for
which such payment was made; and whenever such pay-
ment is made such collector shall, if required, give a separate
receipt for each tax paid by any debtor, on account of pay-
ments made to or to be made by him to separate creditors in
such form that such debtor can conveniently produce the same
separately to his several creditors in satisfaction of their respec-
tive demands to the amounts specified in such receipts; and such

298 act of 1916

receipts shall be sufficient evidence in favor of such debtor to
justify him in withholding the amount therein expressed from
his next payment to his creditor; but such creditor may, upon
giving to his debtor a full written receipt, acknowledging the
payment to him of whatever sum may be actually paid, and
accepting the amount of tax paid as aforesaid (specifying the
same) as a further satisfaction of the debt to that amount, re-
quire the surrender to him of such collector's receipt.

Sec. 18. That if any individual liable to make the return or
pay the tax aforesaid shall refuse or neglect to make such return
at the time or times hereinbefore specified in each year, he shall
be liable to a penalty of not less than $20 nor more than $1,000.
Any individual or any officer of any corporation, joint-stock
company or association, or insurance company required by law
to make, render, sign, or verify any return who makes any false
or fraudulent return or statement with intent to defeat or evade
the assessment required by this title to be made shall be guilty
of a misdemeanor, and shall be fined not exceeding $2,000 or be
imprisoned not exceeding one year, or both, in the discretion of
the court, with the costs of prosecution: Provided, That where
any tax heretofore due and payable has been duly paid by the
taxpayer, it shall not be re-collected from any person or corpo-
ration required to retain it at its source, nor shall any penalty be
imposed or collected in such cases from the taxpayer, or such
person or corporation whose duty it was to retain it, for failure
to return or pay the same, unless such failure was fraudulent
and for the purpose of evading payment.

Sec. 19. The collector or deputy collector shall require every
return to be verified by the oath of the party rendering it. If
the collector or deputy collector have reason to believe that the
amount of any income returned is understated, he shall give
due notice to the person making the return to show cause why
the amount of the return should not be increased, and upon proof
of the amount understated may increase the same accordingly.
Such person may furnish sworn testimony to prove any relevant
facts, and, if dissatisfied with the decision of the collector, may
appeal to the Commissioner of Internal Revenue for his decision
under such rules of procedure as may be prescribed by regulation.

act of 1916 299

Sec. 20. That jurisdiction is hereby conferred upon the
district courts of the United States for the district within which
any person summoned under this title to appear to testify or to
produce books shall reside, to compel such attendance, produc-
tion of books, and testimony by appropriate process.

Sec. 21. That the preparation and publication of statistics
reasonably available with respect to the operation of the income
tax law and containing classifications of taxpayers and of
income, the amounts allowed as deductions and exemptions, and
any other facts deemed pertinent and valuable, shall be made
annually by the Commissioner of Internal Revenue with the
approval of the Secretary of the Treasury.

Sec. 22. That all administrative, special, and general provi-
sions of law, including the laws in relation to the assessment,
remission, collection, and refund of internal-revenue taxes not
heretofore specifically repealed and not inconsistent with the
provisions of this title, are hereby extended and made applicable
to all the provisions of this title and to the tax herein imposed.

Sec. 23. That the provisions of this title shall extend to Porto
Rico and the Philippine Islands: Provided, That the administra-
tion of the law and the collection of the taxes imposed in Porto
Rico and the Philippine Islands shall be by the appropriate
internal-revenue officers of those governments, and all revenues
collected in Porto Rico and the Philippine Islands thereunder
shall accrue intact to the general Governments thereof, re-
spectively: Provided further, That the jurisdiction in this title
conferred upon the district courts of the United States shall,
so far as the Philippine Islands are concerned, be vested in the
courts of the first instance of said islands: And provided further,
That nothing in this title shall be held to exclude from the
computation of the net income the compensation paid any
official by the governments of the District of Columbia, Porto
Rico, and the Philippine Islands, or the political subdivisions
thereof.

Sec. 24. That Section II of the Act approved October third,
nineteen hundred and thirteen, entitled "An Act to reduce tariff
duties and to provide revenue for the Government, and for other
purposes," is hereby repealed, except as herein otherwise pro-

300 act of 1916

vided, and except that it shall remain in force for the assessment
and collection of all taxes which have accrued thereunder, and
for the imposition and collection of all penalties or forfeitures
which have accrued or may accrue in relation to any of such
taxes, and except that the unexpended balance of any appropria-
tion heretofore made and now available for the administration
of such section or any provision thereof shall be available for
the administration of this title or the corresponding provision
thereof.

Sec. 25. That income on which has been assessed the tax
imposed by Section II of the Act entitled "An Act to reduce
tariff duties and to provide revenue for the Government, and for
other purposes," approved October third, nineteen hundred and
thirteen, shall not be considered as income within the meaning
of this title: Provided, That this section shall not conflict with
that portion of section ten, of this title, under which a taxpayer
has fixed its own fiscal year.

ACT OF 1917

(Approved Oct. 3, 1917)

Title I. — Wab Income Tax.

Section 1. That in addition to the normal tax imposed by
subdivision (a) of section one of the Act entitled "An Act to
increase the revenue, and for other purposes," approved Sep-
tember eighth, nineteen hundred and sixteen, there shall be
levied, assessed, collected, and paid a like normal tax of two per
centum upon the income of every individual, a citizen or resident
of the United States, received in the calendar year nineteen
hundred and seventeen and every calendar year thereafter.

Sec. 2. That in addition to the additional tax imposed by
subdivision (b) of section one of such Act of September eighth,
nineteen hundred and sixteen, there shall be levied, assessed,
collected, and paid a like additional tax upon the income of
every individual received in the calendar year nineteen hundred
and seventeen and every calendar year thereafter, as follows:

One per centum per annum upon the amount by which the
total net income exceeds $5,000 and does not exceed $7,500;

Two per centum per annum upon the amount by which the
total net income exceeds $7,500 and does not exceed $10,000;

Three per centum per annum upon the amount by which the
total net income exceeds $10,000 and does not exceed $12,500;

Four per centum per annum upon the amount by which the
total net income exceeds $12,500 and does not exceed $15,000;

Five per centum per annum upon the amount by which the
total net income exceeds $15,000 and does not exceed $20,000;

Seven per centum per annum upon the amount by which the
total net income exceeds $20,000 and does not exceed $40,000;

Ten per centum per annum upon the amount by which the
total net income exceeds $40,000 and does not exceed $60,000;

Fourteen per centum per annum upon the amount by which
the total net income exceeds $60,000 and does not exceed
$80,000;

301

302 act of 1917

Eighteen per centum per annum upon the amount by which
the total net income exceeds $80,000 and does not exceed
$100,000;

Twenty-two per centum per annum upon the amount by
which the total net income exceeds $100,000 and does not ex-
ceed $150,000;

Twenty-five per centum per annum upon the amount by
which the total net income exceeds $150,000 and does not ex-
ceed $200,000;

Thirty per centum per annum upon the amount by which the
total net income exceeds $200,000 and does not exceed $250,000;

Thirty-four per centum per annum upon the amount by which
the total net income exceeds $250,000 and does not exceed
$300,000; «

Thirty-seven per centum per annum upon the amount by
which the total net income exceeds $300,000 and does not
exceed $500,000;

Forty per centum per annum upon the amount by which the
total net income exceeds $500,000 and does not exceed $750,000.

Forty-five per centum per annum upon the amount by which
the total net income exceeds $750,000 and does not exceed
$1,000,000.

Fifty per centum per annum upon the amount by which the
total net income exceeds $1,000,000.

Sec. 3. That the taxes imposed by sections one and two of
this Act shall be computed, levied, assessed, collected, and paid
upon the same basis and in the same manner as the similar taxes
imposed by section one of such Act of September eighth, nine-
teen hundred and sixteen, except that in the case of the tax
imposed by section one of this Act (a) the exemptions of $3,000
and $4,000 provided in section seven of such Act of September
eighth, nineteen hundred and sixteen, as amended by this Act,
shall be, respectively, $1,000 and $2,000, and (b) the returns
required under subdivisions (b) and (c) of section eight of such
Act as amended by this Act shall be required in the case of net
incomes of $1,000 or over, in the case of unmarried persons,
and $2,000 or over in the case of married persons, instead of
$3,000 or over, as therein provided, and (c) the provisions of

act of 1917 303

subdivision (c) of section nine of such Act, as amended by this
Act, requiring the normal tax of individuals on income derived
from interest to be deducted and withheld at the source of the
income shall not apply to the new two per centum normal tax pre-
scribed in section one of this Act until on and after January first,
nineteen hundred and eighteen, and thereafter only one two per
centum normal tax shall be deducted and withheld at the source
under the provisions of such subdivision (c), and any further
normal tax for which the recipient of such income is liable under
this Act or such Act of September eighth, nineteen hundred and
sixteen, as amended by this Act, shall be paid by such recipient.

Sec. 4. That in addition to the tax imposed by subdivision
(a) of section ten of such Act of September eighth, nineteen
hundred and sixteen, as amended by this Act, there shall be
levied, assessed, collected, and paid a like tax of four per centum
upon the income received in the calendar year nineteen hundred
and seventeen and every calendar year thereafter, by every
corporation, joint-stock company or association, or insurance
company, subject to the tax imposed by that subdivision of that
section, except that if it has fixed its own fiscal year, the tax
imposed by this section for the fiscal year ending during the
calendar year nineteen hundred and seventeen shall be levied,
assessed, collected, and paid only on that proportion of its in-
come for such fiscal year which the period between January first,
nineteen hundred and seventeen, and the end of such fiscal year
bears to the whole of such fiscal year.

The tax imposed by this section shall be computed, levied,
assessed, collected, and paid upon the same incomes and in the
same manner as the tax imposed by subdivision (a) of section
ten of such Act of September eighth, nineteen hundred and
sixteen, as amended by this Act, except that for the purpose of
the tax imposed by this section the income embraced in a return
of a corporation, joint-stock company or association, or insur-
ance company, shall be credited with the amount received as
dividends upon the stock or from the net earnings of any other
corporation, joint-stock company or association, or insurance
company, which is taxable upon its net income as provided in
this title.

304 act of 1917

Sec. 5. That the provisions of this title shall not extend to
Porto Rico or the Philippine Islands, and the Porto Rican or
Philippine Legislature shall have power by due enactment to
amend, alter, modify, or repeal the income tax laws in force in
Porto Rico or the Philippine Islands, respectively.

Title II. — War Excess Profits Tax.

Sec. 200. That when used in this title —

The term "corporation" includes joint-stock companies or
associations and insurance companies;

The term "domestic" means created under the law of the
United States, or of any State, Territory, or District thereof, and
the term "foreign" means created under the law of any other
possession of the United States or of any foreign country or
government;

The term "United States" means only the States, the Terri-
tories of Alaska and Hawaii, and the District of Columbia;

The term "taxable year" means the twelve months ending
December thirty-first, excepting in the case of a corporation or
partnership which has fixed its own fiscal year, in which case it
means such fiscal year. The first taxable year shall be the year
ending December thirty-first, nineteen hundred and seventeen,
except that in the case of a corporation or partnership which has
fixed its own fiscal year, it shall be the fiscal year ending during
the calendar year nineteen hundred and seventeen. If a corpo-
ration or partnership, prior to March first, nineteen hundred and
eighteen, makes a return covering its own fiscal year, and in-
cludes therein the income received during that part of the fiscal
year falling within the calendar year nineteen hundred and six-
teen, the tax for such taxable year shall be that proportion of the
tax computed upon the net income during such full fiscal year
which the time from January first, nineteen hundred and seven-
teen, to the end of such fiscal year bears to the full fiscal year;
and

The term "prewar period" means the calendar years nineteen
hundred and eleven, nineteen hundred and twelve, and nineteen
hundred and thirteen, or, if a corporation or partnership was not

act of 1917 305

in existence or an individual was not engaged in a trade or busi-
ness during the whole of such period, then as many of such years
during the whole of which the corporation or partnership was in
existence or the individual was engaged in the trade or business.

The terms "trade" and "business" include professions and
occupations.

The term "net income" means in the case of a foreign corpo-
ration or partnership or a nonresident alien individual, the net
income received from sources within the United States.

Sec. 201. That in addition to the taxes under existing law and
under this act there shall be levied, assessed, collected, and paid
for each taxable year upon the income of every corporation,
partnership, or individual, a tax (hereinafter in this title referred
to as the tax) equal to the following percentages of the net
income :

Twenty per centum of the amount of the net income in excess
of the deduction (determined as hereinafter provided) and not in
excess of fifteen per centum of the invested capital for the tax-
able year;

Twenty-five per centum of the amount of the net income in
excess of fifteen per centum and not in excess of twenty per
centum of such capital;

Thirty-five per centum of the amount of the net income in
excess of twenty per centum and not in excess of twenty-five per
centum of such capital;

Forty-five per centum of the amount of the net income in
excess of twenty-five per centum and not in excess of thirty-
three per centum of such capital; and

Sixty per centum of the amount of the net income in excess of
thirty-three per centum of such capital.

For the purpose of this title every corporation or partnership
not exempt under the provisions of this section shall be deemed
to be engaged in business, and all the trades and businesses in
which it is engaged shall be treated as a single trade or business,
and all its income from whatever source derived shall be deemed
to be received from such trade or business.

This title shall apply to all trades or businesses of whatever
description, whether continuously carried on or not, except —

306 act of 1917

(a) In the case of officers and employees under the United
States, or any State, Territory, or the District of Columbia, or
any local subdivision thereof, the compensation or fees received
by them as such officers or employees;

(b) Corporations exempt from tax under the provisions of
section eleven of Title I of such Act of September eighth, nine-
teen hundred and sixteen, as amended by this Act, and partner-
ships and individuals carrying on or doing the same business, or
coming within the same description; and

(c) Incomes derived from the business of life, health, and
accident insurance combined in one policy issued on the weekly
premium payment plan.

Sec. 202. That the tax shall not be imposed in the case of the
trade or business of a foreign corporation or partnership or a
nonresident alien individual, the net income of which trade or
business during the taxable year is less than $3,000.

Sec. 203. That for the purposes of this title the deduction
shall be as follows, except as otherwise in this title provided —

(a) In the case of a domestic corporation, the sum of (1) an
amount equal to the same percentage of the invested capital for
the taxable year which the average amount of the annual net
income of the trade or business during the prewar period was of
the invested capital for the prewar period (but not less than
seven or more than nine per centum of the invested capital for
the taxable year), and (2) $3,000;

(b) In the case of a domestic partnership or of a citizen or
resident of the United States, the sum of (1) an amount equal to
the same percentage of the invested capital for the taxable year
which the average amount of the annual net income of the trade
or business during the prewar period was of the invested capital
for the prewar period (but not less than seven or more than nine
per centum of the invested capital for the taxable year), and
(2) $6,000;

(c) In the case of a foreign corporation or partnership or of
a nonresident alien individual, an amount ascertained in the
same manner as provided in subdivisions (a) and (b) without
any exemption of $3,000 or $6,000.

(d) If the Secretary of the Treasury is unable satisfactorily to

act of 1917 307

determine the average amount of the annual net income of the
trade or business during the prewar period, the deduction shall
be determined in the same manner as provided in section two
hundred and five.

Sec. 204. That if a corporation or partnership was not in
existence, or an individual was not engaged in the trade or
business, during the whole of any one calendar year during the
perwar period, the deduction shall be an amount equal to eight
per centum of the invested capital for the taxable year, plus in
the case of a domestic corporation $3,000, and in the case of a
domestic partnership or a citizen or resident of the United States
$6,000.

A trade or business carried on by a corporation, partnership,
or individual, although formally organized or reorganized on or
after January second, nineteen hundred and thirteen, which is
substantially a continuation of a trade or business carried on
prior to that date, shall, for the purposes of this title, be deemed
to have been in existence prior to that date, and the net
income and invested capital of its predecessor prior to that
date shall be deemed to have been its net income and invested
capital. '

Sec. 205. (a) That if the Secretary of the Treasury, upon
complaint find either (1) that during the prewar period a domes-
tic corporation or partnership, or a citizen or resident of the
United States, had no net income from the trade or business, or
(2) that during the prewar period the percentage, which the net
income was of the invested capital, was low as compared with the
percentage, which the net income during such period of repre-
sentative corporations, partnerships, and individuals, engaged in
a like or similar trade or business, was of their invested capital,
then the deduction shall be the sum of (1) an amount equal to
the same percentage of its invested capital for the taxable year
which the average deduction (determined in the same manner as
provided in section two hundred and three, without including
the $3,000 or $6,000 therein referred to) for such year of repre-
sentative corporations, partnerships, or individuals, engaged in
a like or similar trade or business, is of their average invested
capital for such year plus (2) in the case of a domestic corpora-

308 act op 1917

tion $3,000, and in the case of a domestic partnership or a citizen
or resident of the United States $6,000.

The percentage which the net income was of the invested
capital in each trade or business shall be determined by the
Commissioner of Internal Revenue, in accordance with regula-
tions prescribed by him, with the approval of the Secretary of
the Treasury. In the case of a corporation or partnership which
has fixed its own fiscal year, the percentage determined by the
calendar year ending during such fiscal year shall be used.

(b) The tax shall be assessed upon the basis of the deduction
determined as provided in section two hundred and three, but
the taxpayer claiming the benefit of this section may at the time
of making the return file a claim for abatement of the amount by
which the tax so assessed exceeds a tax computed upon the basis
of the deduction determined as provided in this section. In such
event, collection of the part of the tax covered by such claim for
abatement shall not be made until the claim is decided, but if in
the judgment of the Commissioner of Internal Revenue, the
interests of the United States would be jeopardized thereby he
may require the claimant to give a bond in such amount and
with such sureties as the commissioner may think wise to safe-
guard such interests, conditioned for the payment of any tax
found to be due, with the interest thereon, and if such bond,
satisfactory to the commissioner, is not given within such time
as he prescribes, the full amount of tax assessed shall be collected
and the amount overpaid, if any, shall upon final decision of the
application be refunded as a tax erroneously or illegally collected.

Sec. 206. That for the purposes of this title the net income of
a corporation shall be ascertained and returned (a) for the
calendar years nineteen hundred and eleven and nineteen hun-
dred and twelve upon the same basis and in the same manner as
provided in section thirty-eight of the Act entitled "An Act to
provide revenue, equalize duties, and encourage the industries of
the United States, and for other purposes," approved August
fifth, nineteen hundred and nine, except that income taxes paid
by it within the year imposed by the authority of the United
States shall be included; (b) for the calendar year nineteen
hundred and thirteen upon the same basis and in the same

act of 1917 309

manner as provided in section II of the Act entitled "An Act
to reduce tariff duties and to provide revenue for the Govern-
ment, and for other purposes," approved October third, nineteen
hundred and thirteen, except that income taxes paid by it within
the year imposed by the authority of the United States shall be
included, and except that the amounts received by it as divi-
dends upon the stock or from the net earnings of other corpora-
tions, joint-stock companies or associations, or insurance com-
panies, subject to the tax imposed by section II of such Act of
October third, nineteen hundred and thirteen, shall be deducted;
and (c) for the taxable year upon the same basis and in the same
manner as provided in Title I of the Act entitled "An Act to
increase the revenue, and for other purposes," approved Sep-
tember eighth, nineteen hundred and sixteen, as amended by
this Act, except that the amounts received by it as dividends
upon the stock or from the net earnings of other corporations,
joint-stock companies or associations, or insurance companies,
subject to the tax imposed by Title I of such Act of September
eighth, nineteen hundred and sixteen, shall be deducted.

The net income of a partnership or individual shall be ascer-
tained and returned for the calendar years nineteen hundred and
eleven, nineteen hundred and twelve, and nineteen hundred and
thirteen, and for the taxable year, upon the same basis and in the
same manner as provided in Title I of such Act of September
eighth, nineteen hundred and sixteen, as amended by this Act,
except that the credit allowed by subdivision (b) of section five
of such Act shall be deducted. There shall be allowed (a) in the
case of a domestic partnership the same deductions as allowed
to individuals in subdivision (a) of section five of such Act of
September eighth, nineteen hundred and sixteen, as amended by
this Act; and (b) in the case of a foreign partnership the same
deductions as allowed to individuals in subdivision (a) of section
six of such Act as amended by this Act.

Sec. 207. That as used in this title, the term "invested capi-
tal" for any year means the average invested capital for the
year, as defined and limited in this title, averaged monthly.

As used in this title "invested capital" does not include
stocks, bonds (other than obligations of the United States), or

'310 ACT OF 1917

other assets, the income from which is not subject to the tax
imposed by this title nor money or other property borrowed, and
means, subject to the above limitations:

(a) In the case of a corporation or partnership: (1) Actual
cash paid in, (2) the actual cash value of tangible property paid
in other than cash, for stock or shares in such corporation or
partnership, at the time of such payment (but in case such
tangible property was paid in prior to January first, nineteen
hundred and fourteen, the actual cash value of such property as
of January first, nineteen hundred and fourteen, but in no case
to exceed the par value of the original stock or shares specifically
issued therefor), and (3) paid in or earned surplus and undivided
profits used or employed in the business, exclusive of undivided
profits earned during the taxable year: Provided, That (a) the
actual cash value of patents and copyrights paid in for stock
or shares in such corporation or partnership, at the time of such
payment, shall be included as invested capital, but not to exceed
the par value of such stock or shares at the time of such pay-
ment, and (b) the good will, trade-marks, trade brands, the
franchise of a corporation or partnership, or other intangible
property, shall be included as invested capital if the corporation
or partnership made payment bona fida therefor specifically as
such in cash or tangible property, the value of such good will,
trade-mark, trade brand, franchise, or intangible property, not
to exceed the actual cash or actual cash value of the tangible
property paid therefor at the time of such payment; but good
will, trade-marks, trade brands, franchise of a corporation or
partnership, or other intangible property, bona fide purchased,
prior to March third, nineteen hundred and seventeen, for and
with interests or shares in a partnership or for and with shares
in the capital stock of a corporation (issued prior to March third,
nineteen hundred and seventeen), in an amount not to exceed,
on March third, nineteen hundred and seventeen, twenty per
centum of the total interests or shares in the partnership or of
the total shares of the capital stock of the corporation, shall be
included in invested capital at a value not to exceed the actual
cash value at the time of such purchase, and in case of issue of
stock therefor not to exceed the par value of such stock;

ACT OF 1917 311

(b) In the case of an individual, (1) actual cash paid into the
trade or business, and (2) the actual cash value of tangible
property paid into the trade or business, other than cash, at the
time of such payment (but in case such tangible property was
paid in prior to January first, nineteen hundred and fourteen,
the actual cash value of such property as of January first,
nineteen hundred and fourteen), and (3) the actual cash value of
patents, copyrights, good will, trade-marks, trade brands, fran-
chises, or other intangible property, paid into the trade or
business, at the time of such payment, if payment was made
therefor specifically as such in cash or tangible property, not to
exceed the actual cash or actual cash value of the tangible prop-
erty bona fide paid therefor at the time of such payment.

In the case of a foreign corporation or partnership or of a non-
resident alien individual the term "invested capital" means that
proportion of the entire invested capital, as defined and limited in
this title, which the net income from sources within the United
States bears to the entire net income.

Sec. 208. That in case of the reorganization, consolidation or
change of ownership of a trade or business after March third,
nineteen hundred and seventeen, if an interest or control in such
trade or business of fifty per centum or more remains in control
of the same persons, corporations, associations, partnerships, or
any of them, then in ascertaining the invested capital of the
trade or business no asset transferred or received from the prior
trade or business shall be allowed a greater value than would
have been allowed under this title in computing the invested
capital of such prior trade or business if such asset had not been
so transferred or received, unless such asset was paid for specifi-
cally as such, in cash or tangible property, and then not to exceed
the actual cash or actual cash value of the tangible property paid
therefor at the time of such payment.

Sec. 209. That in the case of a trade or business having no
invested capital or not more than a nominal capital there shall
be levied, assessed, collected and paid, in addition to the taxes
under existing law and under this Act, in lieu of the tax imposed
by section two hundred and one, a tax equivalent to eight per-
centum of the net income of such trade or business in excess of

312 act of 1917

the following deductions: In the case of a domestic corporation
$3,000, and in the case of a domestic partnership or a citizen
or resident of the United States $6,000; in the case of all other
trades or business, no deduction.

Sec. 210. That if the Secretary of the Treasury is unable in
any case satisfactorily to determine the invested capital, the
amount of the deduction shall be the sum of (1) an amount
equal to the same proportion of the net income of the trade or
business received during the taxable year as the proportion which
the average deduction (determined in the same manner as pro-
vided in section two hundred and three, without including the
$3,000 or $6,000 therein referred to) for the same calendar year
of representative corporations, partnerships, and individuals,
engaged in a like or similar trade or business, bears to the total
net income of the trade or business received by such corpora-
tions, partnerships, and individuals, plus (2) in the case of a
domestic corporation $3,000, and in the case of a domestic
partnership or a citizen or resident of the United States $6,000.

For the purpose of this section the proportion between the
deduction and the net income in each trade or business shall be
determined by the Commissioner of Internal Revenue in accor-
dance with regulations prescribed by him, with the approval of
the Secretary of the Treasury. In the case of a corporation or
partnership, which has fixed its own fiscal year, the proportion
determined for the calendar year ending during such fiscal year
shall be used.

Sec. 211. That every foreign partnership having a net in-
come of $3,000 or more for the taxable year, and every domestic
partnership having a net income of $6,000 or more for the tax-
able year, shall render a correct return of the income of the trade
or business for the taxable year, setting forth specifically the
gross income for such year, and the deductions allowed in this
title. Such returns shall be rendered at the same time and in the
same manner as is prescribed for income-tax returns under
Title I of such Act of September eighth, nineteen hundred and
sixteen, as amended by this Act.

Sec. 212. That all administrative, special, and general pro-
visions of law, including the laws in relation to the assessment,

act of 1917 313

remission, collection, and refund of internal-revenue taxes not
heretofore specifically repealed, and not inconsistent with the
provisions of this title are hereby extended and made applicable
to all the provisions of this title and to the tax herein imposed,
and all provisions of Title I of such Act of September eighth,
nineteen hundred and sixteen, as amended by this Act, relating
to returns and payment of the tax therein imposed, including
penalties, are hereby made applicable to the tax imposed by
this title.

Sec. 213. That the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, shall make all
necessary regulations for carrying out the provisions of this title,
and may require any corporation, partnership, or individual,
subject to the provisions of this title, to furnish him with such
facts, data, and information as in his judgment are necessary to
collect the tax imposed by this title.

Sec. 214. That Title II (sections two hundred to two hundred
and seven, inclusive) of the Act entitled "An Act to provide
increased revenue to defray the expenses of the increased ap-
propriations for the Army and Navy, and the extensions of
fortifications, and for other purposes," approved March third,
nineteen hundred and seventeen, is hereby repealed.

Any amount heretofore or hereafter paid on account of the
tax imposed by such Title II, shall be credited toward the pay-
ment of the tax imposed by this title, and if the amount so paid
exceeds the amount of such tax the excess shall be refunded as a
tax erroneously or illegally collected.

Subdivision (1) of section three hundred and one of such Act
of September eighth, nineteen hundred and sixteen, is hereby
amended so that the rate of tax for the taxable year nineteen
hundred and seventeen shall be ten per centum instead of twelve
and one-half per centum, as therein provided.

Subdivision (2) of such section is hereby amended to read
as follows:

"(2) This section shall cease to be of effect on and after
January first, nineteen hundred and eighteen."

ACT OF 1918 (INCOME AND PROFITS TAX
PROVISIONS)

(Approved Feb. 24, 1919)

AN ACT

To provide revenue, and for other purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled,

Title I. — General Definitions

Section 1. That when used in this Act —

The term "person" includes partnerships and corporations
as well as individuals;

The term "corporation" includes associations, joint-stock
companies, and insurance companies;

The term "domestic" when applied to a corporation or
partnership means created or organized in the United States;

The term "foreign" when applied to a corporation or part-
nership means created or organized outside the United States;

The term "United States" when used in a geographical sense
includes only the States, the Territories of Alaska and Hawaii,
and the District of Columbia;

The term "Secretary" means the Secretary of the Treasury;

The term "Commissioner" means the Commissioner of
Internal Revenue;

The term "collector" means collector of internal revenue;

The term "Revenue Act of 1916" means the Act entitled
"An Act to increase the revenue, and for other purposes,"
approved September 8, 1916;

The term "Revenue Act of 1917" means the Act entitled
"An Act to provide revenue to defray war expenses, and for
other purposes," approved October 3, 1917;

The term "taxpayer" includes any person, trust or estate
subject to a tax imposed by this Act;

314

act of 1918 315

The term "Government contract" means (a) a contract
made with the United States, or with any department, bureau,
officer, commission, board, or agency, under the United
States and acting in its behalf, or with any agency controlled
by any of the above if the contract is for the benefit of the
United States, or (b) a subcontract made with a contractor
performing such a contract if the products or services to be
furnished under the subcontract are for the benefit of the United
States.

The term "Government contract or contracts made between
April 6, 1917, and November 11, 1918, both dates inclusive"
when applied to a contract of the kind referred to in clause (a)
of this paragraph, includes all such contracts which, although
entered into during such period, were originally not enforceable,
but which have been or may become enforceable by reason of
subsequent validation in pursuance of law;

The term "military or naval forces of the United States"
includes the Marine Corps, the Coast Guard, the Army Nurse
Corps, Female, and the Navy Nurse Corps, Female, but this
shall not be deemed to exclude other units otherwise included
within such term;

The term "present war" means the war in which the United
States is now engaged against the German Government.

For the purposes of this Act the date of the termination of
the present war shall be fixed by proclamation of the President.

Title II. — Income Tax

PART I. GENERAL PROVISIONS

Definitions

Section 200. That when used in this title

The term "taxable year" means the calendar year, or the
fiscal year ending during such calendar year, upon the basis of
which the net income is computed under section 212 or section
232.

The term "fiscal year" means an accounting period of twelve
months ending on the last day of any month other than Decern-

316 act of 1918

ber. The first taxable year, to be called the taxable year 1918,
shall be the calendar year 1918 or any fiscal year ending during
the calendar year 1918;

The term "fiduciary" means a guardian, trustee, executor,
administrator, receiver, conservator, or any person acting in
any fiduciary capacity for any person, trust or estate;

The term "withholding agent" means any person required
to deduct and withhold any tax under the provisions of section
221 or section 237;

The term "personal service corporation" means a corporation
whose income is to be ascribed primarily to the activities of the
principal owners or stockholders who are themselves regularly
engaged in the active conduct of the affairs of the corporation
and in which capital (whether invested or borrowed) is not a
material income-producing factor; but does not include any
foreign corporation, nor any corporation 50 per centum or
more of whose gross income consists either (1) of gains, profits,
or income derived from trading as a principal, or (2) of gains,
profits, commissions, or other income, derived from a Govern-
ment contract or contracts made between April 6, 1917, and
November 11, 1918, both dates inclusive;

The term "paid," for the purposes of the deductions and
credits under this title, means "paid or accrued" or "paid or
incurred," and the terms "paid or incurred" and "paid or
accrued" shall be construed according to the method of account-
ing upon the basis of which the net income is computed under
section 212.

Dividends

Section 201. (a) That the term "dividend" when used in
this title (except in paragraph (10) of subdivision (a) of section
234) means (1) any distribution made by a corporation, other
than a personal service corporation, to its shareholders or
members, whether in cash or in other property or in stock of
the corporation, out of its earning or profits accumulated since
February 28, 1913, or (2) any such distribution made by a
personal service corporation out of its earnings or profits ac-
cumulated since February 28, 1913, and prior to January 1, 1918.

act of 1918 317

(b) Any distribution shall be deemed to have been made
from earnings or profits unless all earnings and profits have first
been distributed. Any distribution made in the year 1918 or
any year thereafter shall be deemed to have been made from
earnings or profits accumulated since February 28, 1913, or,
in the case of a personal service corporation, from the most
recently accumulated earnings or profits; but any earnings or
profits accumulated prior to March 1, 1913, may be distributed
in stock dividends or otherwise, exempt from the tax, after the
earnings and profits accumulated since February 28, 1913,
have been distributed.

(c) A dividend paid in stock of the corporation shall be con-
sidered income to the amount of the earnings or profits distrib-
uted. Amounts distributed in the liquidation of a corporation
shall be treated as payments in exchange for stock or shares,
and any gain or profit realized thereby shall be taxed to the
distributee as other gains or profits.

(d) If any stock dividend (1) is received by a taxpayer
between January 1 and November 1, 1918, both dates inclusive,
or (2) is during such period bona fide authorized or declared,
and entered on the books of the corporation, and is received
by a taxpayer after November 1, 1918, and before the expiration
of thirty days after the passage of this Act, then such dividend
shall, in the manner provided in Section 206, be taxed to the
recipient at the rates prescribed by law for the years in which
the corporation accumulated the earnings or profits from which
such dividend was paid, but the dividend shall be deemed to
have been paid from the most recently accumulated earnings
or profits.

(e) Any distribution made during the first sixty days of any
taxable year shall be deemed to have been made from earnings
or profits accumulated during preceding taxable years; but any
distribution made during the remainder of the taxable year
shall be deemed to have been made from earnings or profits
accumulated between the close of the preceding taxable year
and the date of distribution, to the extent of such earnings or
profits, and if the books of the corporation do not show the
amount of such earnings or profits, the earnings or profits for

318 act of 1918

the accounting period within which the distribution was made
shall be deemed to have been accumulated ratably during such
period.

Basis for Determining Gain or Loss

Section 202. (a) That for the purpose of ascertaining the
gain derived or loss sustained from the sale or other disposition
of property, real, personal, or mixed, the basis shall be —

(1) In the case of property acquired before March 1, 1913,
the fair market price or value of such property as of that date;
and

(2) In the case of property acquired on or after that date,
the cost thereof; or the inventory value, if the inventory is

made in accordance with section 203.

(b) When property is exchanged for other property, the
property received in exchange shall for the purpose of deter-
mining gain or loss be treated as the equivalent of cash to the
amount of its fair market value, if any; but when in connection
with the reorganization, merger, or consolidation of a corpo-
ration a person receives in place of stock or securities owned by
him new stock or securities of no greater aggregate par or face
value, no gain or loss shall be deemed to occur from the ex-
change, and the new stock or securities received shall be
treated as taking the place of the stock, securities, or property
exchanged.

When in the case of any such reorganization, merger or con-
solidation the aggregate par or face value of the new stock or
securities received is in excess of the aggregate par or face value
of the stock or securities exchanged, a like amount in par or face
value of the new stock or securities received shall be treated as
taking the place of the stock or securities exchanged, and the
amount of the excess in par or face value shall be treated as a
gain to the extent that the fair market value of the new stock
or securities is greater than the cost (or if acquired prior to
March 1, 1913, the fair market value as of that date) of the
stock or securities exchanged.

act of 1918 319

Inventories

Section 203. That whenever in the opinion of the Commis-
sioner the use of inventories is necessary in order clearly to
determine the income of any taxpayer, inventories shall be taken
by such taxpayer upon such basis as the Commissioner, with
the approval of the Secretary, may prescribe as conforming
as nearly as may be to the best accounting practice in the trade
or business and as most clearly reflecting the income.

Net Losses

Section 204. (a) That as used in this section the term "net
loss" refers only to net losses resulting from either (1) the oper-
ation of any business regularly carried on by the taxpayer, or
(2) the bona fide sale by the taxpayer of plant, buildings, ma-
chinery, equipment or other facilities, constructed, installed or
acquired by the taxpayer on or after April 6, 1917, for the pro-
duction of articles contributing to the prosecution of the present
war; and when so resulting means the excess of the deductions
allowed by law (excluding in the case of corporations amounts
allowed as a deduction under paragraph (6) of subdivision (a)
of section 234) over the sum of the gross income plus any interest
received free from taxation both under this title and under Title
III.

(b) If for any taxable year beginning after October 31, 1918,
and ending prior to January 1, 1920, it appears upon the pro-
duction of evidence satisfactory to the Commissioner that any
taxpayer has sustained a net loss, the amount of such net loss
shall under regulations prescribed by the Commissioner with
the approval of the Secretary be deducted from the net income
of the taxpayer for the preceding taxable year; and the taxes
imposed by this title and by Title III for such preceding taxable
year shall be redetermined accordingly. Any amount found to
be due to the taxpayer upon the basis of such redetermination
shall be credited or refunded to the taxpayer in accordance with
the provisions of section 252. If such net loss is in excess of the
net income for such preceding taxable year, the amount of such

320 act op 1918

excess shall under regulations prescribed by the Commissioner
with the approval of the Secretary be allowed as a deduction
in computing the net income for the succeeding taxable year,
(c) The benefit of this section shall be allowed to the members
of a partnership and the beneficiaries of an estate or trust under
regulations prescribed by the Commissioner with the approval
of the Secretary.

Fiscal Year With Different Rates

Section 205. (a) That if a taxpayer makes return for a
fiscal year beginning in 1917 and ending in 1918, his tax under
this title for the first taxable year shall be the sum of: (1) The
same proportion of a tax for the entire period computed under
Title I of the Revenue Act of 1916 as amended by the Revenue
Act of 1917 and under Title I of the Revenue Act of 1917, which
the portion of such period falling within the calendar year 1917
is of the entire period, and (2) the same proportion of a tax for
the entire period computed under this title at the rates for the
calendar year 1918 which the portion of such period falling
within the calendar year 1918 is of the entire period: Provided,
That in the case of a personal service corporation the amount
to be paid shall be only that specified in clause (1).

Any amount heretofore or hereafter paid on account of the tax
imposed for such fiscal year by Title I of the Revenue Act of
1916 as amended by the Revenue Act of 1917, and by Title I
of the Revenue Act of 1917, shall be credited towards the pay-
ment of the tax imposed for such fiscal year by this Act, and
if the amount so paid exceeds the amount of such tax imposed
by this Act, or, in the case of a personal service corporation, the
amount specified in clause (1), the excess shall be credited or
refunded in accordance with the provisions of section 252.

(b) If a taxpayer makes a return for a fiscal year beginning
in 1918 and ending in 1919, the tax under this title for such
fiscal year shall be the sum of: (1) the same proportion of a tax
for the entire period computed under this title at the rates speci-
fied for the calendar year 1918 which the portion, of such period
falling within the calendar year 1918 is of the entire period, and

act of 1918 321

(2) the same proportion of a tax for the entire period computed
under this title at the rates specified for the calendar year 1919
which the portion of such period falling within the calendar
year 1919 is of the entire period.

(c) If a fiscal year of a partnership begins in 1917 and ends
in 1918 or begins in 1918 and ends in 1919, then notwithstanding
the pro-visions of subdivision (b) of section 218, (1) the rates for
the calendar year during which such fiscal year begins shall apply
to an amount of each partner's share of such partnership net
income (determined under the law applicable to such year)
equal to the proportion which the part of such fiscal year falling
within such calendar year bears to the full fiscal year, and (2)
the rates for the calendar year during which such fiscal year
ends shall apply to an amount of each partner's share of such
partnership net income (determined under the law applicable
to such calendar year) equal to the proportion which the part
of such fiscal year falling within such calendar year bears to
the full fiscal year: Provided, That in the case of a personal
service corporation with respect to a fiscal year beginning in
1917 and ending in 1918, the amount specified in clause (1)
shall not be subject to normal tax.

Parts of Income Subject to Rates for Different Years

Section 206. That whenever parts of a taxpayer's income
are subject to rates for different calendar years, the part sub-
ject to the rates for the most recent calendar year shall be placed
in the lower brackets of the rate schedule provided in this title,
the part subject to the rates for the next preceding calendar year
shall be placed in the next higher brackets of the rate schedule
applicable to that year, and so on until the entire net income
has been accounted for. In determining the income, any deduc-
tions, exemptions or credits of a kind not plainly and properly
chargeable against the income taxable at rates for a preceding
year shall first be applied against the income subject to rates
for the most recent calendar year; but any balance thereof shall
be applied against the income subject to the rates of the next
preceding year or years until fully allowed.

322 act of 1918

pabt ii. — individuals
Normal Tax

Section 210. That, in lieu of the taxes imposed by sub-
division (a) of section 1 of the Revenue Act of 1916 and by
section 1 of the Revenue Act of 1917, there shall be levied,
collected, and paid for each taxable year upon the net income
of every individual a normal tax, at the following rates:

(a) For the calendar year 1918, 12 per centum of the amount
of the net income in excess of the credits provided in section 216:
Provided, That in the case of a citizen or resident of the United
States the rate upon the first $4,000 of such excess amount shall
be 6 per centum;

(b) For each calendar year thereafter, 8 per centum of the
amount of the net income in excess of the credits provided in
section 216: Provided, That in the case of a citizen or resident
of the United States the rate upon the first $4,000 of such ex-
cess amount shall be 4 per centum.

Surtax

Section 211. (a) That, in lieu of the taxes imposed by sub-
division (b) of section 1 of the Revenue Act of 1916 and by
section 2 of the Revenue Act of 1917, but in addition to the
normal tax imposed by section 210 of this Act, there shall be
levied, collected, and paid for each taxable year upon the net
income of every individual, a surtax equal to the sum of the
following:

1 per centum of the amount by which the net income exceeds
$5,000 and does not exceed $6,000;

2 per centum of the amount by which the net income exceeds
$6,000 and does not exceed $8,000;

3 per centum of the amount by which the net income exceeds
$8,000 and does not exceed $10,000;

4 per centum of the amount by which the net income exceeds
$10,000 and does not exceed $12,000;

5 per centum of the amount by which the net income exceeds
$12,000 and does not exceed $14,000;

act of 1918 323

6 per centum of the amount by which the net income exceeds
$14,000 and does not exceed. $16,000;

7 per centum of the amount by which the net income exceeds
$16,000 and does not exceed $18,000;

8 per centum of the amount by which the net income exceeds
$18,000 and does not exceed $20,000;

9 per centum of the amount by which the net income exceeds
$20,000 and does not exceed $22,000;

10 per centum of the amount by which the net income exceeds
$22,000 and does not exceed $24,000;

11 per centum of the amount by which the net income exceeds
$24,000 and does not exceed $26,000;

12 per centum of the amount by which the net income exceeds
$26,000 and does not exceed $28,000;

13 per centum of the amount by which the net income exceeds
$28,000 and does not exceed $30,000;

14 per centum of the amount by which the net income exceeds
$30,000 and does not exceed $32,000;

15 per centum of the amount by which the net income exceeds
$32,000 and does not exceed $34,000;

16 per centum of the amount by which the net income exceeds
$34,000 and does not exceed $36,000;

17 per centum of the amount by which the net income exceeds
$36,000 and does not exceed $38,000;

18 per centum of the amount by which the net income exceeds
$38,000 and does not exceed $40,000;

19 per centum of the amount by which the net income exceeds
$40,000 and does not exceed $42,000;

20 per centum of the amount by which the net income exceeds
$42,000 and does not exceed $44,000;

21 per centum of the amount by which the net income exceeds
$44,000 and does not exceed $46,000;

22 per centum of the amount by which the net income exceeds
$46,000 and does not exceed $48,000;

23 per centum of the amount by which the net income exceeds
$48,000 and does not exceed $50,000;

24 per centum of the amount by which the net income exceeds
$50,000 and does not exceed $52,000;

324 act op 1918

25 per centum of the amount by which the net income exceeds
$52,000 and does not exceed $54,000;

26 per centum of the amount by which the net income exceeds
$54,000 and does not exceed $56,000;

27 per centum of the amount by which the net income exceeds
$56,000 and does not exceed $58,000;

28 per centum of the amount by which the net income exceeds
$58,000 and does not exceed $60,000;

29 per centum of the amount by which the net income exceeds
$60,000 and does not exceed $62,000;

30 per centum of the amount by which the net income exceeds
$62,000 and does not exceed $64,000;

31 per centum of the amount by which the net income exceeds
$64,000 and does not exceed $66,000;

32 per centum of the amount by which the net income exceeds
$66,000 and does not exceed $68,000;

33 per centum of the amount by which the net income exceeds
$68,000 and does not exceed $70,000;

34 per centum of the amount by which the net income exceeds
$70,000 and does not exceed $72,000;

35 per centum of the amount by which the net income exceeds
$72,000 and does not exceed $74,000;

36 per centum of the amount by which the net income exceeds
$74,000 and does not exceed $76,000;

37 per centum of the amount by which the net income exceeds
$76,000 and does not exceed $78,000;

38 per centum of the amount by which the net income exceeds
$78,000 and does not exceed $80,000;

39 per centum of the amount by which the net income exceeds
$80,000 and does not exceed $82,000;

40 per centum of the amount by which the net income exceeds
$82,000 and does not exceed $84,000;

41 per centum of the amount by which the net income exceeds
$84,000 and does not exceed $86,000;

42 per centum of the amount by which the net income exceeds
$86,000 and does not exceed $88,000;

43 per centum of the amount by which the net income exceeds
$88,000 and does not exceed $90,000;

act of 1918 325

44 per centum of the amount by which the net income exceeds
3,000 and doss not exceed $92,000;

45 per centum of the amount by which the net income exceeds
$92,000 and does not exceed $94,000;

46 per centum of the amount by which the net income exceeds
$94,000 and does not exceed $96,000;

47 per centum of the amount by which the net income exceeds
$96,000 and does not exceed $98,000;

48 per centum of the amount by which the net income exceeds
$98,000 and does not exceed $100,000;

52 per centum of the amount by which the net income exceeds
$100,000 and does not exceed $150,000;

56 per centum of the amount by which the net income exceeds
$150,000 and does not exceed $200,000;

60 per centum of the amount by which the net income exceeds
$200,000 and does not exceed $300,000;

63 per centum of the amount by which the net income exceeds
$300,000 and does not exceed $500,000;

64 per centum of the amount by which the net income exceeds
$500,000 and does not exceed $1,000,000;

65 per centum of the amount by which the net income exceeds
$1,000,000.

(b) In the case of a bona fide sale of mines, oil or gas wells,
or any interest therein, where the principal value of the property
has been demonstrated by prospecting or exploration and dis-
covery work done by the taxpayer, the portion of the tax im-
posed by this section attributable to such sale shall not exceed
20 per centum of the selling price of such property or interest.

Net Income Defined

Section 212. (a) That in the case of an individual the term
"net income" means the gross income as denned in section 213,
less the deductions allowed by section 214.

(b) The net income shall be computed upon the basis of the
taxpayer's annual accounting period (fiscal year or calendar
year, as the case may be) in accordance with the method of
accounting regularly employed in keeping the books of such

326 act of 1918

taxpayer; but if no such method of accounting has been so
employed, or if the method employed does not clearly reflect the
income, the computation shall be made upon such basis and in
such manner as in the opinion of the Commissioner does clearly
reflect the income. If the taxpayer's annual accounting period
is other than a fiscal year as defined in section 200 or if the tax-
payer has no annual accounting period or does not keep books,
the net income shall be computed on the basis of the calendar
year.

If a taxpayer changes his accounting period from fiscal year
to calendar year, from calendar year to fiscal year, or from one
fiscal year to another, the net income shall, with the approval
of the Commissioner, be computed on the basis of such new
accounting period, subject to the provisions of section 226.

Gross Income Defined

Section 213. That for the purposes of this title (except as
otherwise provided in section 233) the term "gross income" —

(a) Includes gains, profits, and income derived from salaries,
wages, or compensation for personal service (including in the
case of the President of the United States, the judges of the
Supreme and inferior courts of the United States, and all other
officers and employees, whether elected or appointed, of the
United States, Alaska, Hawaii, or any political subdivision
thereof, or the District of Columbia, the compensation received
as such) of whatever kind and in whatever form paid, or from
professions, vocations, trades, businesses, commerce, or sales, or
dealings in property, whether real or personal, growing out of the
ownership or use of or interest in such property; also from in-
terest, rent, dividends, securities, or the transaction of any
business carried on for gain or profit, or gains or profits and in-
come derived from any source whatever. The amount of all
such items shall be included in the gross income for the taxable
year in which received by the taxpayer, unless, under methods of
accounting permitted under subdivision (b) of section 212, any
such amounts are to be properly accounted for as of a different
period; but

act of 1918 327

(b) Does not include the following items, which shall be
exempt from taxation under this title:

(1) The proceeds of life insurance policies paid upon the death
of the insured to individual beneficiaries or to the estate of
the insured;

(2) The amount received by the insured as a return of pre-
mium or premiums paid by him under life insurance, endow-
ment, or annuity contracts, either during the term or at the
maturity of the term mentioned in the contract or upon surren-
der of the contract;

(3) The value of property acquired by gift, bequest, devise, or
descent (but the income from such property shall be included
in gross income);

(4) Interest upon (a) the obligations of a State, Territory, or
any political subdivision thereof, or the District of Columbia;
or (b) securities issued under the provisions of the Federal Farm
Loan Act of July 17, 1916; or (c) the obligations of the United
States or its possessions; or (d) bonds issued by the War Finance
Corporation: Provided, That every person owning any of the
obligations, securities or bonds enumerated in clauses (a), (b),
(c), and (d) shall, in the return required by this title, submit a
statement showing the number and amount of such obligations,
securities and bonds owned by him and the income received
therefrom, in such form and with such information as the
Commissioner may require. In the case of obligations of the
United States issued after September 1, 1917, and in the case of
bonds issued by the War Finance Corporation, the interest shall
be exempt only if and to the extent provided in the respective
Acts authorizing the issue thereof as amended and supple-
mented, and shall be excluded from gross income only if and to
the extent it is wholly exempt from taxation to the taxpayer both
under this title and under Title III;

(5) The income of foreign governments received from invest-
ments in the United States in stocks, bonds, or other domestic
securities, owned by such foreign governments, or from interest
on deposits in banks in the United States of moneys belonging to
such foreign governments, or from any other source within the
United States;

328 act of 1918

(6) Amountg received, through accident or health insurance
or under workmen's compensation acts, as compensation for
personal injuries or sickness, plus the amount of any damages
received whether by suit or agreement on account of such
injuries or sickness;

(7) Income derived from any public utility or the exercise of
any essential governmental function and accruing to any State,
Territory, or the District of Columbia, or any political subdivi-
sion of a State or Territory, or income accruing to the govern-
ment of any possession of the United States, or any political
subdivision thereof.

Whenever any State, Territory, or the District of Columbia,
or any political subdivision of a State or Territory, prior to
September 8, 1916, entered in good faith into a contract with
any person, the object and purpose of which is to acquire,
construct, operate, or maintain a public utility, no tax shall be
levied under the provisions of this title upon the income derived
from the operation of such public utility, so far as the payment
thereof will impose a loss or burden upon such State, Territory,
District of Columbia, or political subdivision; but this provision
is not intended to confer upon such person any financial gain or
exemption or to relieve such person from the payment of a tax
as provided for in this title upon the part or portion of such
income to which such person is entitled under such contract;

(8) So much of the amount received during the present war
by a person in the military or naval forces of the United States
as salary or compensation in any form from the United States
for active services in such forces as does not exceed $3,500.

(c) In the case of nonresident alien individuals, gross income
includes only the gross income from sources within the United
States, including interest on bonds, notes, or other interest-
bearing obligations of residents, corporate or otherwise, divi-
dends from resident corporations, and including all amounts
received (although paid under a contract for the sale of goods
or otherwise) representing profits on the manufacture and dis-
position of goods within the United States.

act of 1918 329

Deductions Allowed

Section 214. (a) That in computing net income there
shall be allowed as deductions:

(1) All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensa-
tion for personal services actually rendered, and including
rentals or other payments required to be made as a condition to
the continued use or possession, for purposes of the trade or
business, of property to which the taxpayer has not taken or is
not taking title or in which he has no equity;

(2) All interest paid or accrued within the taxable year on
indebtedness, except on indebtedness incurred or continued to
purchase or carry obligations or securities (other than obliga-
tions of the United States issued after September 24, 1917), the
interest upon which is wholly exempt from taxation under this
title as income to the taxpayer, or, in the case of a nonresident
alien individual, the proportion of such interest which the
amount of his gross income from sources within the United
States bears to the amount of his gross income from all sources
within and without the United States;

(3) Taxes paid or accrued within the taxable year imposed
(a) by the authority of the United States, except income, war
profits and excess-profits taxes; or (b) by the authority of any of
its possessions, except the amount of income, war profits and
excess-profits taxes allowed as a credit under section 222; or (c)
by the authority of any State or Territory, or any county, school
district, municipality, or other taxing subdivision of any State
or Territory, not including those assessed against local benefits
of a kind tending to increase the value of the property assessed;
or (d) in the case of a citizen or resident of the United States, by
the authority of any foreign country, except the amount of
income, war-profits and excess-profits taxes allowed as a credit
under section 222; or (e) in the case of a nonresident alien
individual, by the authority of any foreign country (except
income, war-profits and excess-profits taxes, and taxes
assessed against local benefits of a kind tending to in-

330 act of 1918

crease the value of the properly assessed), upon property
or business;

(4) Losses sustained during the taxable year and not com-
pensated for by insurance or otherwise, if incurred in trade or
business;

(5) Losses sustained during the taxable year and not com-
pensated for by insurance or otherwise, if incurred in any trans-
action entered into for profit, though not connected with the
trade or business; but in the case of a nonresident alien individ-
ual only as to such transactions within the United States;

(6) Losses sustained during the taxable year of property not
connected with the trade or business (but in the case of a non-
resident alien individual only property within the United States)
if arising from fires, storms, shipwreck, or other casualty, or
from theft, and if not compensated for by insurance or otherwise;

(7) Debts ascertained to be worthless and charged off within
the taxable year;

(8) A reasonable allowance for the exhaustion, wear and
tear of property used in the trade or business, including a
reasonable allowance for obsolescence;

(9) In the case of buildings, machinery, equipment, or other
facilities, constructed, erected, installed, or acquired, on or after
April 6, 1917, for the production of articles contributing to the
prosecution of the present war, and in the case of vessels con-
structed or acquired on or after such date for the transportation
of articles or men contributing to the prosecution of the present
war, there shall be allowed a reasonable deduction for the amorti-
zation of such part of the cost of such facilities or vessels as has
been borne by the taxpayer, but not again including any amount
otherwise allowed under this title or previous Acts of Congress
as a deduction in computing net income. At any time within
three years after the termination of the present war, the Com-
missioner may, and at the request of the taxpayer shall, re-
examine the return, and if he then finds as a result of an ap-
praisal or from other evidence that the deduction originally
allowed was incorrect, the taxes imposed by this title and by
Title III for the year or years affected shall be redetermined;
and the amount of tax due upon such redetermination, if any,

act of 1918 331

shall be paid upon notice and demand by the collector, or the
amount of tax overpaid, if any, shall be credited or refunded to
the taxpayer in accordance with the provisions of section 252;

(10) In the case of mines, oil and gas wells, other natural
deposits, and timber, a reasonable allowance for depletion and
for depreciation of improvements, according to the peculiar
conditions in each case, based upon cost including cost of devel-
opment not otherwise deducted : Provided, That in the case of
such properties acquired prior to March 1, 1913, the fair market
value of the property (or the taxpayer's interest therein) on that
date shall be taken in lieu of cost up to that date: Provided
further, That in the case of mines, oil and gas wells, discovered
by the taxpayer, on or after March 1, 1913, and not acquired as
the result of purchase of a proven tract or lease, where the fair
market value of the property is materially disproportionate to
the cost, the depletion allowance shall be based upon the fair
market value of the property at the date of the discovery, or
within thirty days thereafter; such reasonable allowance in all
the above cases to be made under rules and regulations to be
prescribed by the Commissioner with the approval of the
Secretary. In the case of leases the deductions allowed by this
paragraph shall be equitably apportioned between the lessor
and lessee;

(11) Contributions or gifts made within the taxable year to
corporations organized and operated exclusively for religious,
charitable, scientific, or educational purposes, or for the preven-
tion of cruelty to children or animals, no part of the net earnings
of which inures to the benefit of any private stockholder or
individual, or to the special fund for vocational rehabilitation
authorized by section 7 of the Vocational Rehabilitation Act, to
an amount not in excess of 15 per centum of the taxpayer's net
income as computed without the benefit of this paragraph. Such
contributions or gifts shall be allowable as deductions only if
verified under rules and regulations prescribed by the Commis-
sioner, with the approval of the Secretary. In the case of a
nonresident alien individual this deduction shall be allowed only
as to contributions or gifts made to domestic corporations, or to
such vocational rehabilitation fund;

332 act of 1918

(12) (a) At the time of filing return for the taxable year 1918
a taxpayer may file a claim in abatement based on the fact that
he has sustained a substantial loss (whether or not actually
realized by sale or other disposition) resulting from any material
reduction (not due to temporary fluctuation) of the value of the
inventory for such taxable year, or from the actual payment
after the close of such taxable year of rebates in pursuance of
contracts entered into during such year upon sales made during
such year. In such case payment of the amount of the tax
covered by such claim shall not be required until the claim is
decided, but the taxpayer shall accompany his claim with a bond
in double the amount of the tax covered by the claim, with
sureties satisfactory to the Commissioner, conditioned for the
payment of any part of such tax found to be due, with interest.
If any part of such claim is disallowed then the remainder of the
tax due shall on notice and demand by the collector be paid by
the taxpayer with interest, at the rate of 1 per centum per month
from the time the tax would have been due had no such claim
been filed. If it is shown to the satisfaction of the Commis-
sioner that such substantial loss has been sustained, then in
computing the tax imposed by this title the amount of such loss
shall be deducted from the net income, (b) If no such claim is
filed, but it is shown to the satisfaction of the Commissioner that
during the taxable year 1919 the taxpayer has sustained a sub-
stantial loss of the character above described then the amount of
such loss shall be deducted from the net income for the taxable
year 1918 and the tax imposed by this title for such year shall be
redetermined accordingly. Any amount found to be due to the
taxpayer upon the basis of such redetermination shall be credited
or refunded to the taxpayer in accordance with the provisions
of section 252.

(b) In the case of a nonresident alien individual the deduc-
tions allowed in paragraphs (1, 4, 7, 8, 9, 10, 12) and clause (e) of
paragraph (3), of subdivision (a) shall be allowed only if and to
the extent that they are connected with income arising from a
source within the United States; and the proper apportionment
and allocation of the deductions with respect to sources of income
within and without the United States shall be determined under

act op 1918 333

rules and regulations prescribed by the Commissioner with the
approval of the Secretary.

Items Not Deductible

Section 215. That in computing net income no deduction
shall in any case be allowed in respect of —

(a) Personal, living, or family expenses;

(b) Any amount paid out for new buildings or for permanent
improvements or betterments made to increase the value of
any property or estate;

(c) Any amount expended in restoring property or in making
good the exhaustion thereof for which an allowance is or has
been made; or

(d) Premiums paid on any life insurance policy covering
the life of any officer or employee, or of any person financially
interested in any trade or business carried on by the taxpayer,
when the taxpayer is directly or indirectly a beneficiary under
such policy.

Credits Allowed

Section 216. That for the purpose of the normal tax only
there shall be allowed the following credits:

(a) The amount received as dividends from a corporation
which is taxable under this title upon its net income, and
amounts received as dividends from a personal service corpora-
tion out of earnings or profits upon which income tax has been
imposed by Act of Congress;

(b) The amount received as interest upon obligations of the
United States and bonds issued by the War Finance Corpo-
ration, which is included in gross income under section 213;

(c) In the case of a single person, a personal exemption of
$1,000, or in the case of the head of a family or a married person
living with husband or wife, a personal exemption of $2,000.
A husband and wife living together shall receive but one per-
sonal exemption of $2,000 against their aggregate net income;
and in case they make separate returns, the personal exemption
of $2,000 may be taken by either or divided between them;

334 act of 1918

(d) $200 for each person (other than husband or wife) de-
pendent upon and receiving his chief support from the taxpayer,
if such dependent person is under eighteen years of age or is
incapable of self-support because mentally or physically defec-
tive.

(e) In the case of a nonresident alien individual who is a
citizen or subject of a country which imposes an income tax,
the credits allowed in subdivisions (c) and (d) shall be allowed
only if such country allows a similar credit to citizens of the
United States not residing in such country.

Nonresident Aliens — Allowance of Deductions and Credits

Section 217. That a nonresident alien individual shall re-
ceive the benefit of the deductions and credits allowed in this
title only by filing or causing to be filed with the collector a true
and accurate return of his total income received from all sources
corporate or otherwise in the United States, in the manner pre-
scribed by this title, including therein all the information which
the Commissioner may deem necessary for the calculation of
such deductions and credits: Provided, That the benefit of the
credits allowed in subdivisions (c) and (d) of section 216 may,
in the discretion of the Commissioner, and except as otherwise
provided in subdivision (e) of that section, be received by filing
a claim therefor with the withholding agent. In case of failure
to file a return, the collector shall collect the tax on such income,
and all property belonging to such nonresident alien individual
shall be liable to distraint for the tax.

Partnerships and Personal Service Corporations

Section 218. (a) That individuals carrying on business in
partnership shall be liable for income tax only in their individual
capacity. There shall be included in computing the net income
of each partner his distributive share, whether distributed or
not, of the net income of the partnership for the taxable year,
or, if his net income for such taxable year is computed upon the
basis of a period different from that upon the basis of which

act of 1918 335

the net income of the partnership is computed, then his dis-
tributive share of the net income of the partnership for any
accounting period of the partnership ending within the fiscal
or calendar year upon the basis of which the partner's net in-
come is computed.

The partner shall, for the purpose of the normal tax, be al-
lowed as credits, in addition to the credits allowed to him under
section 216, his proportionate share of such amounts specified
in subdivisions (a) and (b) of section 216 as are received by the
partnership.

(b) If a fiscal year of a partnership ends during a calendar
year for which the rates of tax differ from those for the preceding
calendar year, then (1) the rates for such preceding calendar
year shall apply to an amount of each partner's share of such
partnership net income equal to the proportion which the part
of such fiscal year falling within such calendar year bears to
the full fiscal year, and (2) the rates for the calendar year dur-
ing which such fiscal year ends shall apply to the remainder.

(c) In the case of an individual member of a partnership
which makes return for a fiscal year beginning in 1917 and end-
ing in 1918, his proportionate share of any excess profits tax
imposed upon the partnership under the Revenue Act of 1917
with respect to that part of such fiscal year falling in 1917, shall,
for the purpose of determining the tax imposed by this title, be
credited against that portion of the net income embraced in
his personal return for the taxable year 1918 to which the rates
for 1917 apply.

(d) The net income of the partnership shall be computed
in the same manner and on the same basis as provided in section
212, except that the deduction provided in paragraph (11) of
subdivision (a) of section 214 shall not be allowed.

(e) Personal service corporations shall not be subject to taxa-
tion under this title, but the individual stockholders thereof
shall be taxed in the same manner as the members of partner-
ships. All the provisions of this title relating to partnerships
and the members thereof shall so far as practicable apply to
personal service corporations and the stockholders thereof:
Provided, That for the purpose of this subdivision amounts

336 act op 1918

distributed by a personal service corporation during its taxable
year shall be accounted for by the distributees; and any portion
of the net income remaining undistributed at the close of its
taxable year shall be accounted for by the stockholders of such
corporation at the close of its taxable year in proportion to
their respective shares.

Estates and Trusts

Section 219. (a) That the tax imposed by sections 210
and 211 shall apply to the income of estates or of any kind of
property held in trust, including —

(1) Income received by estates of deceased persons during
the period of administration or settlement of the estate;

(2) Income accumulated in trust for the benefit of unborn
or unascertained persons or persons with contingent interests;

(3) Income held for future distribution under the terms of
the will or trust; and

(4) Income which is to be distributed to the beneficiaries
periodically, whether or not at regular intervals, and the income
collected by a guardian of an infant to be held or distributed
as the court may direct.

(b) The fiduciary shall be responsible for making the return
of income for the estate or trust for which he acts. The net
income of the estate or trust shall be computed in the same
manner and on the same basis as provided in section 212, except
that there shall also be allowed as a deduction (in lieu of the
deduction authorized by paragraph (11) of subdivision (a) of
section 214) any part of the gross income which, pursuant to
the terms of the will or deed creating the trust, is during the
taxable year paid to or permanently set aside for the United
States, any State, Territory, or any political subdivision thereof,
or the District of Columbia, or any corporation organized and
operated exclusively for religious, charitable, scientific, or edu-
cational purposes, or for the prevention of cruelty to children
or animals, no part of the net earnings of which inures to the
benefit of any private stockholder or individual; and in cases
under paragraph (4) of subdivision (a) of this section the fiduciary

act of 1918 337

shall include in the return a statement of each beneficiary's dis-
tributive share. of such net income, whether or not distributed
before the close of the taxable year for which the return is made.

(c) In cases under paragraph (1), (2), or (3) of subdivision (a)
the tax shall be imposed upon the net income of the estate or
trust and shall be paid by the fiduciary, except that in deter-
mining the net income of the estate of any deceased person dur-
ing the period of administration or settlement there may be
deducted the amount of any income properly paid or credited
to any legatee, heir or other beneficiary. In such cases the
estate or trust shall, for the purpose of the normal tax, be
allowed the same credits as are allowed to single persons under
section 216.

(d) In cases under paragraph (4) of subdivision (a), and in
the case of any income of an estate during the period of adminis-
tration or settlement permitted by subdivision (c) to be de-
ducted from the net income upon which tax is to be paid by
the fiduciary, the tax shall not be paid by the fiduciary, but
there shall be included in computing the net income of each
beneficiary his distributive share, whether distributed or not,
of the net income of the estate or trust for the taxable year, or,
if his net income for such taxable year is computed upon the
basis of a period different from that upon the basis of which
the net income of the estate or trust is computed, then his
distributive share of the net income of the estate or trust for
any accounting period of such estate or trust ending within
the fiscal or calendar year upon the basis of which such benefici-
ary's net income is computed. In such cases the beneficiary
shall, for the purpose of the normal tax, be allowed as credits
in addition to the credits allowed to him under section 216, his
proportionate share of such amounts specified in subdivisions
(a) and (b) of section 216 as are received by the estate or trust.

Profits of Corporations Taxable to Stockholders

Section 220. That if any corporation, however created or
organized, is formed or availed of for the purpose of preventing
the imposition of the surtax upon its stockholders or members

338 act op 1918

through the medium of permitting its gains and profits to
accumulate instead of being divided or distributed, such cor-
poration shall not be subject to the tax imposed by section 230,
but the stockholders or members thereof shall be subject to
taxation under this title in the same manner as provided in
subdivision (e) of section 218 in the case of stockholders of a
personal service corporation, except that the tax imposed by-
Title III shall be deducted" from the net income of the corpo-
ration before the computation of the proportionate share of each
stockholder or member. The fact that any corporation is a
mere holding company, or that the gains and profits are per-
mitted to accumulate beyond the reasonable needs of the
business, shall be prima facie evidence of a purpose to escape
the surtax; but the fact that the gains and profits are in any
case permitted to accumulate and become surplus shall not be
construed as evidence of a purpose to escape the tax in such
case unless the Commissioner certifies that in his opinion such
accumulation is unreasonable for the purposes of the business.
When requested by the Commissioner, or any collector, every
corporation shall forward to him a correct statement of such
gains and profits and the names and addresses of the individuals
or shareholders who would be entitled to the same if divided
or distributed, and of the amounts that would be payable to
each.

Payment of Tax at Source

Section 221. (a) That all individuals, corporations and
partnerships, in whatever capacity acting, including lessees or
mortgagors of real or personal property, fiduciaries, employers,
and all officers and employees of the United States, having the
control, receipt, custody, disposal, or payment, of interest, rent,
salaries, wages, premiums, annuities, compensations, remunera-
tions, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, of any nonresident alien
individual (other than income received as dividends from a
corporation which is taxable under this title upon its net income,
fhall (except in the cases provided for in subdivision (b) and
except as otherwise provided in regulations prescribed by the

act op 1918 339

Commissioner under section 217) deduct and withhold from such
annual or periodical gains, profits, and income a tax equal to 8
per centum thereof: Provided, That the Commissioner may
authorize such tax to be deducted and withheld from the interest
upon any securities the owners of which are not known to the
withholding agent.

(b) In any case where bonds, mortgages, or deeds of trust,
or other similar obligations of a corporation contain a contract
or provision by which the obligor agrees to pay any portion of
the tax imposed by this title upon the obligee, or to reimburse
the obligee for any portion of the tax, or to pay the interest with-
out deduction for any tax which the obligor may be required or
permitted to pay thereon or to retain therefrom under any law of
the United States, the obligor shall deduct and withhold a tax
equal to 2 per centum of the interest upon such bonds, mort-
gages, deeds of trust, or other obligations, whether such interest
is payable annually or at shorter or longer periods and whether
payable to a nonresident alien individual or to an individual
citizen or resident of the United States or to a partnership:
Provided, That the Commissioner may authorize such tax to be
deducted and withheld in the case of interest upon any such
bonds, mortgages, deeds of trust or other obligations, the owners
of which are not known to the withholding agent. Such deduc-
tion and withholding shall not be required in the case of a citizen
or resident entitled to receive such interest, if he files with the
withholding agent on or before February 1, a signed notice in
writing claiming the benefit of the credits provided in subdivi-
sions (c) and (d) of section 216; nor in the case of a nonresident
alien individual if so provided for in regulations prescribed by
the Commissioner under section 217.

(c) Every individual, corporation, or partnership required to
deduct and withhold any tax under this section shall make
return thereof on or before March first of each year and shall on
or before June 15th pay the tax to the official of the United
States Government authorized to receive it. Every such
individual, corporation, or partnership is hereby made liable for
such tax and is hereby indemnified against the claims and
demands of any individual, corporation, or partnership for the

340 act op 1918

amount of any payments made in accordance with the provi-
sions of this section.

(d) Income upon which any tax is required to be withheld at
the source under this section shall be included in the return of
the recipient of such income, but any amount of tax so withheld
shall be credited against the amount of income tax as computed
in such return.

(e) If any tax required under this section to be deducted and
withheld is paid by the recipient of the income, it shall not be
re-collected from the withholding agent; nor in cases in which
the tax is so paid shall any penalty be imposed upon or collected
from the recipient of the income or the withholding agent for
failure to return or pay the same, unless such failure was fraud-
ulent and for the purpose of evading payment.

Credit for Taxes

Section 222. (a) That the tax computed under Part II of
this title shall be credited with:

(1) In the case of a citizen of the United States, the amount
of any income, war-profits and excess-profits taxes paid during
the taxable year to any foreign country, upon income derived
from sources therein, or to any possession of the United States;
and

(2) In the case of a resident of the United States, the amount
of any such taxes paid during the taxable year to any possession
of the United States; and

(3) In the case of an alien resident of the United States who
is a citizen or subject of a foreign country, the amount of any
such taxes paid or accrued during the taxable year to such
country, upon income derived from sources therein, if such
country, in imposing such taxes, allows a similar credit to
citizens of the United States residing in such country; and

(4) In the case of any such individual who is a member of a
partnership or a beneficiary of an estate or trust, his propor-
tionate share of such taxes of the partnership or the estate or
trust paid during the taxable year to a foreign country or to any
possession of the United States, as the case may be.

act of 1918 341

(b) If accrued taxes when paid differ from the amounts
claimed as credits by the taxpayer, or if any tax paid is refunded
in whole or in part, the taxpayer shall notify the Commissioner
who shall redetermine the amount of the tax due under Part II
of this title for the year or years affected, and the amount of
tax due upon such redetermination, if any, shall be paid by the
taxpayer upon notice and demand by the collector, or the
amount of tax overpaid, if any, shall be credited or refunded to
the taxpayer in accordance with the provisions of Section 252.
In the case of such a tax accrued but not paid, the Commis-
sioner as a condition precedent to the allowance of this credit
may require the taxpayer to give a bond with sureties satisfac-
tory to and to be approved by the Commissioner in such penal
sum as the Commissioner may require, conditioned for the pay-
ment by the taxpayer of any amount of tax found due upon any
such redetermination; and the bond herein prescribed shall con-
tain such further conditions as the commissioner may require.

(c) These credits shall be allowed only if the taxpayer fur-
nishes evidence satisfactory to the Commissioner showing the
amount of income derived from sources within such foreign
country or such possession of the United States, and all other
information necessary for the computation of such credits.

Individual Returns

Section 223. That every individual having a net income for
the taxable year of $1,000 or over if single or if married and not
living with husband or wife, or of $2,000 or over if married and
living with husband or wife, shall make under oath a return
stating specifically the items of his gross income and the deduc-
tions and credits allowed by this title. If a husband and wife
living together have an aggregate net income of $2,000 or over,
each shall make such a return unless the income of each is
included in a single joint return.

If the taxpayer is unable to make his own return, the return
shall be made by a duly authorized agent or by the guardian or
other person charged with the care of the person or property
of such taxpayer.

342 act of 1918

Section 224. That every partnership shall make a return for
each taxable year, stating specifically the items of its gross in-
come and the deductions allowed by this title, and shall include
in the return the names and addresses of the individuals who
would be entitled to share in the net income if distributed and
the amount of the distributive share of each individual. The
return shall be sworn to by any one of the partners.

Fiduciary Returns

Section 225. That every fiduciary (except receivers ap-
pointed by authority of law in possession of part only of the
property of an individual) shall make under oath a return for the
individual, estate or trust for which he acts (1) if the net income
of such individual is $1,000 or over if single or if married and not
living with husband or wife, or $2,000 or over if married and
living with husband or wife, or (2) if the net income of such es-
tate or trust is $1,000 or over or if any beneficiary of such estate
or trust is a nonresident alien, stating specifically the items of
the gross income and the deductions and credits allowed by this
title. Under such regulations as the Commissioner with the
approval of the Secretary may prescribe, a return made by one
of two or more joint fiduciaries and filed in the office of the
collector of the district where such fiduciary resides shall be a
sufficient compliance with the above requirement. The fidu-
ciary shall make oath that he has sufficient knowledge of the
affairs of such individual, estate or trust to enable him to make
the return, and that the same is, to the best of his knowledge
and belief, true and correct.

Fiduciaries required to make returns under this Act shall
be subject to all the provisions of this Act which apply to in-
dividuals.

Returns When Accounting Period Changed

Section 226. That if a taxpayer, with the approval of the
Commissioner, changes the basis of computing net income from
fiscal year to calendar year a separate return shall be made for

act of 1918 343

the period between the close of the last fiscal year for which
return was made and the following December 31. If the change
is from calendar year to fiscal year, a separate return shall be
made for the period between th« close of the last calendar year
for which return was made and the date designated as the close
of the fiscal year. If the change is from one fiscal year to another
fiscal year a separate return shall be made for the period between
the close of the former fiscal year and the date designated as the
close of the new fiscal year. If a taxpayer making his first return
for income tax keeps his accounts on the basis of a fiscal year he
shall make a separate return for the period between the be-
ginning of the calendar year in which such fiscal year ends and
the end of such fiscal year.

In all of the above cases the net income shall be computed on
the basis of such period for which separate return is made, and
the tax shall be paid thereon at the rate for the calendar year in
which such period is included; and the credits provided in
subdivisions (c) and (d) of section 216 shall be reduced respec-
tively to amounts which bear the same ratio to the full credits
provided in such subdivisions as the number of months in such
period bears to twelve months.

Time and Place for Filing Returns

Section 227. (a) That returns shall be made on or before
the fifteenth day of the third month following the close of the
fiscal year, or, if the return is made on the basis of the calendar
year, then the return shall be made on or before the fifteenth
day of March. The Commissioner may grant a reasonable
extension of time for filing returns whenever in his judgment
good cause exists and shall keep a record of every such extension
and the reason therefor. Except in the case of taxpayers who
are abroad, no such extension shall be for more than six months.

(b) Returns shall be made to the collector for the district in
which is located the legal residence or principal place of business
of the person making the return, or, if he has no legal residence
or principal place of business in the United States, then to the
collector at Baltimore, Maryland.

344 act of 1918

Understatement in Returns

Section 228. That if the collector or deputy collector has
reason to believe that the amount of any income returned is
understated, he shall give due notice to the taxpayer making the
return to show cause why the amount of the return should not be
increased, and upon proof of the amount understated, may
increase the same accordingly. Such taxpayer may furnish
sworn testimony to prove any relevant facts and if dissatisfied
with the decision of the collector may appeal to the Commis-
sioner for his decision, under such rules of procedure as may be
prescribed by the Commissioner with the approval of the
Secretary.

PART III. CORPORATIONS

Tax on Corporations

Section 230. (a) That, in lieu of the taxes imposed by sec-
tion 10 of the Revenue Act of 1916, as amended by the Revenue
Act of 1917, and by section 4 of the Revenue Act of 1917, there
shall be levied, collected, and paid for each taxable year upon
the net income of every corporation a tax at the following rates:

(1) For the calendar year 1918, 12 per centum of the amount
of the net income in excess of the credits provided in section 236;
and

(2) For each calendar year thereafter, 10 per centum of
such excess amount.

(b) For the purposes of the Act approved March 21, 1918,
entitled "An Act to provide for the operation of transportation
systems while under Federal control, for the just compensation
of their owners and for other purposes," five-sixths of the tax
imposed by paragraph (1) of subdivision (a) and four-fifths of
the tax imposed by paragraph (2) of subdivision (a) shall be
treated as levied by an Act in amendment of Title I of the
Revenue Act of 1917.

act op 1918 345

Conditional and Other Exemptions

Section 231. That the following organizations shall be
exempt from taxation under this title —

(1) Labor, agricultural, or horticultural organizations;

(2) Mutual savings banks not having a capital stock repre-
sented by shares;

(3) Fraternal beneficiary societies, orders, or associations,
(a) operating under the lodge system or for the exclusive benefit
of the members of a fraternity itself operating under the lodge
system, and (b) providing for the payment of life, sick, accident,
or other benefits to the members of such society, order, or asso-
ciation or their dependents;

(4) Domestic building and loan associations and cooperative
banks without capital stock organized and operated for mutual
purposes and without profit;

(5) Cemetery companies owned and operated exclusively
for the benefit of their members;

(6) Corporations organized and operated exclusively for
religious, charitable, scientific, or educational purposes, or for
the prevention of cruelty to children or animals, no part of the
net earnings of which inures to the benefit of any private stock-
holder or individual;

(7) Business leagues, chambers of commerce, or boards of
trade, not organized for profit and no part of the net earnings
of which inures to the benefit of any private stockholder or
individual;

(8) Civic leagues or organizations not organized for
profit but operated exclusively for the promotion of social
welfare;

(9) Clubs organized and operated exclusively for pleasure,
recreation, and other nonprofitable purposes, no part of the net
earnings of which inures to the benefit of any private stock-
holder or member;

(10) Farmers' or other mutual hail, cyclone, or fire insurance
companies, mutual ditch or irrigation companies, mutual or
cooperative telephone companies, or like organizations of a
purely local character, the income of which consists solely of

346 act of 1918

assessments, dues, and fees collected from members for the sole
purpose of meeting expenses;

(11) Farmers', fruit growers', or like associations, organized
and operated as sales agents for the purpose of market-
ing the products of members and turning back to them the
proceeds of sales, less the necessary selling expenses, on the
basis of the quantity of produce furnished by them;

(12) Corporations organized for the exclusive purpose of
holding title to property, collecting income therefrom, and
turning over the entire amount thereof, less expenses, to an
organization which itself is exempt from the tax imposed by
this title;

(13) Federal land banks and national farm-loan associations
as provided in section 26 of the Act approved July 17, 1916,
entitled "An Act to provide capital for agricultural develop-
ment, to create standard forms of investment based upon farm
mortgage, to equalize rates of interest upon farm loans, to
furnish a market for United States bonds, to create Government
depositaries and financial agents for the United States, and
for other purposes";

(14) Personal service corporations.

Net Income Defined

Section 232. That in the case of a corporation subject to
the tax imposed by section 230 the term "net income" means
the gross income as defined in section 233 less the deductions
allowed by section 234, and the net income shall be computed
on the same basis as is provided in subdivision (b) of section 212
or in section 226.

Gross Income Defined

Section 233. (a) That in the case of a corporation subject to
the tax imposed by section 230 the term "gross income" means
the gross income as denned in section 213, except that:

(1) In the case of life insurance companies there shall not be
included in gross income such portion of any actual premium

act of 1918 347

received from any individual policyholder as is paid back or
credited to or treated as an abatement of premium of such
policyholder within the taxable year.

(2) Mutual marine insurance companies shall include in gross
income the gross premiums collected and received by them less
amounts paid for reinsurance.

(b) In the case of a foreign corporation gross income in-
cludes only the gross income from- sources within the United
States, including the interest on bonds, notes, or other interest-
bearing obligations of residents, corporate or otherwise, divi-
dends from resident corporations, and including all amounts
received (although paid under a contract for the sale of goods
or otherwise) representing profits on the manufacture and
disposition of goods within the United States.

Section 234. (a) That in computing the net income of a
corporation subject to the tax imposed by section 230 there
shall be allowed as deductions:

(1) All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensa-
tion for personal services actually rendered, and including
rentals or other payments required to be made as a condition to
the continued use or possession of property to which the cor-
poration has not taken or is not taking title, or in which it has
no equity;

(2) All interest paid or accrued within the taxable year on its
indebtedness, except on indebtedness incurred or continued to
purchase or carry obligations or securities (other than obliga-
tions of the United States issued after September 24, 1917) the
interest upon which is wholly exempt from taxation under this
title as income to the taxpayer, or, in the case of a foreign
corporation, the proportion of such interest which the amount
of its gross income from sources within the United States bears
to the amount of its gross income from all sources within and
without the United States;

(3) Taxes paid or accrued within the taxable year imposed
(a) by the authority of the United States, except income, war
profits and excess-profits taxes; or (b) by the authority of any of

348 act of 1918

its possessions, except the amount of income, war profits and
excess-profits taxes allowed as a credit under section 238; or
(c) by the authority of any State or Territory, or any county,
school district, municipality, or other taxing subdivision of any
State or Territory, not including those assessed against local
benefits of a kind tending to increase the value of the property
assessed; or (d) in the case of a domestic corporation, by the
authority of any foreign country, except the amount of income,
war-profits and excess-profits taxes allowed as a credit under
section 238; or (e) in the case of a foreign corporation, by the
authority of any foreign country (except income, war-profits and
excess-profits taxes, and taxes assessed against local benefits of a
kind tending to increase the value of the property assessed),
upon the property or business: Provided, That in the case of
obligors specified in subdivision (b) of section 221 no deduction
for the payment of the tax imposed by this title or any other
tax paid pursuant to the contract or provision referred to in that
subdivision, shall be allowed;

(4) Losses sustained during the taxable year and not com-
pensated for by insurance or otherwise;

(5) Debts ascertained to be worthless and charged off within
the taxable year;

(6) Amounts received as dividends from a corporation which
is taxable under this title upon its net income, and amounts
received as dividends from a personal service corporation out of
earnings or profits upon which income tax has been imposed by
Act of Congress;

(7) A reasonable allowance for the exhaustion, wear and tear
of property used in the trade or business, including a reasonable
allowance for obsolescence;

(8) In the case of buildings, machinery, equipment, or other
facilities, constructed, erected, installed, or acquired, on or after
April 6, 1917, for the production of articles contributing to the
prosecution of the present war, and in the case of vessels con-
structed or acquired on or after such date for the transportation
of articles or men contributing to the prosecution of the present
war, there shall be allowed a reasonable deduction for the amor-
tization of such part of the cost of such facilities or vessels as has

act of 1918 349

been borne by the taxpayer, but not again including any amount
otherwise allowed under this title or previous acts of Congress
as a deduction in computing net income. At any time within
three years after the termination of the present war the Com-
missioner may, and at the request of the taxpayer shall, reex-
amine the return, and if he then finds as a result of an appraisal
or from other evidence that the deduction originally allowed
was incorrect, the taxes imposed by this title and by Title III
for the year or years affected shall be redetermined; and the
amount of tax due upon such redetermination, if any, shall be
paid upon notice and demand by the collector, or the. amount of
tax overpaid, if any, shall be credited or refunded to the tax-
payer in accordance with the provisions of section 252;

(9) In the case of mines, oil and gas wells, other natural
deposits, and timber, a reasonable allowance for depletion and
for depreciation of improvements, according to the peculiar
conditions in each case, based upon cost including cost of de-
velopment not otherwise deducted: Provided, That in the
case of such properties acquired prior to March 1, 1913, the
fair market value of the property (or the taxpayer's interest
therein) on that date shall be taken in lieu of cost up to that
date: Provided further, That in the case of mines, oil and gas
wells, discovered by the taxpayer, on or after March 1, 1913,
and not acquired as the result of purchase of a proven tract or
lease, where the fair market value of the property is materially
disproportionate to the cost, the depletion allowance shall be
based upon the fair market value of the property at the date of
the discovery, or within 30 days thereafter; such reasonable
allowance in all the above cases to be made under rules and
regulations to be prescribed by the Commissioner with the
approval of the Secretary. In the case of leases the deductions
allowed by this paragraph shall be equitably apportioned
between the lessor and lessee;

(10) In the case of insurance companies, in addition to the
above: (a) The net addition required by law to be made within
the taxable year to reserve funds (including in the case of
assessment insurance companies the actual deposit of sums
with State or Territorial officers pursuant to law as additions to

350 act of 1918

guarantee or reserve funds) ; and (b) the sums other than divi-
dends paid within the taxable year on policy and annuity con-
tracts;

(11) In the case of corporations issuing policies covering
life, health and accident insurance combined in one policy issued
on the weekly premium payment plan continuing for life and
not subject to cancellation, in addition to the above, such por-
tion of the net addition (not required by law) made within the
taxable year to reserve funds as the Commissioner finds to be
required for the protection of the holders of such policies only;

(12) In. the case of mutual marine insurance companies,
there shall be allowed, in addition to the deductions allowed
in paragraphs (1) to (10), inclusive, amounts repaid to policy-
holders on account of premiums previously paid by them, and
interest paid upon such amounts between the ascertainment
and the payment thereof;

(13) In the case of mutual insurance companies (other than
mutual life or mutual marine insurance companies) requiring
their members to make premium deposits to provide for losses
and expenses, there shall be allowed, in addition to the deduc-
tions allowed in paragraphs (1) to (10), inclusive (unless other-
wise allowed under such paragraphs), the amount of premium
deposits returned to their policyholders and the amount of
premium deposits retained for the payment of losses, expenses,
and reinsurance reserves;

(14) (a) At the time of filing return for the taxable year 1918
a taxpayer may file a claim in abatement based on the fact
that he has sustained a substantial loss (whether or not actually
realized by sale or other disposition) resulting from any material
reduction (not due to temporary fluctuation) of the value of
the inventory for such taxable year, or from the actual payment
after the close of such taxable year of rebates in pursuance of
contracts entered into during such year upon sales made during
such year. In such case payment of the amount of the tax
covered by such claim shall not be required until the claim is
decided, but the taxpayer shall accompany his claim with a
bond in double the amount of the tax covered by the claim,
with sureties satisfactory to the Commissioner, conditioned

act op 1918 351

for the payment of any part of such tax found to be due, with
interest. If any part of such claim is disallowed then the
remainder of the tax due shall on notice and demand by the
Collector be paid by the taxpayer with interest at the rate of
1 per centum per month from the time the tax would have been
due had no such claim been filed. If it is shown to the satis-
faction of the Commissioner that such substantial loss has been
sustained, then in computing the taxes imposed by this title
and by Title III the amount of such loss shall be deducted from
the net income, (b) If no such claim is filed, but it is shown
to the satisfaction of the Commissioner that during the taxable
year 1919 the taxpayer has sustained a substantial loss of the
character above described then the amount of such loss shall
be deducted from the net income for the taxable year 1918 and
the taxes imposed by this title and by Title III for such year
shall be redetermined accordingly. Any amount found to be
due to the taxpayer upon the basis of such redetermination
shall be credited or refunded to the taxpayer in accordance
with the provisions of section 252.

(b) In the case of a foreign corporation the deduction allowed
in subdivision (a), except those allowed in paragraph (2) and in
clauses (a), (b), and (c) of paragraph (3), shall be allowed only
if and to the extent that they are connected with income arising
from a source within the United States; and the proper appor-
tionment and allocation of the deductions with respect to sources
of income within and without the United States shall be deter-
mined under rules and regulations prescribed by the Commis-
sioner with the approval of the Secretary.

Items Not Deductible

Section 235. That in computing net income no deduction
shall in any case be allowed in respect of any of the items speci-
fied in section 215.

Credits Allowed

Section 236. That for the purpose only of the tax imposed
by section 230 there shall be allowed the following credits:

352 act of 1918

(a) The amount received as interest upon obligations of
the United States and bonds issued by the War Finance Cor-
poration, which is included in gross income under section 233;

(b) The amount of any taxes imposed by Title III for the
same taxable year: Provided, That in the case of a corporation
which makes return for a fiscal year beginning in 1917 and end-
ing in 1918, in computing the tax as provided in subdivision
(a) of section 205, the tax computed for the entire period under
Title II of the Revenue Act of 1917 shall be credited against
the net income computed for the entire period under Title I
of the Revenue Act of 1916 as amended by the Revenue Act
of 1917 and under Title I of the Revenue Act of 1917, and the
tax computed for the entire period under Title III of this Act
at the rates prescribed for the calendar year 1918 shall be
credited against the net income computed for the entire period
under this title; and

(c) In the case of a domestic corporation, $2,000.

Payment of Tax At Source

Section 237. That in the case of foreign corporations
subject to taxation under this title not engaged in trade or
business within the United States and not having any office or
place of business therein, there shall be deducted and withheld
at the source in the same manner and upon the same items of
income as is provided in section 221 a tax equal to 10 per centum
thereof, and such tax shall be returned and paid in the same
manner and subject to the same conditions as provided in that
section: Provided, That in the case of interest described in
subdivision (b) of that section the deduction and withholding
shall be at the rate of 2 per centum.

Credit for Taxes

Section 238. (a) That in the case of a domestic corporation
the total taxes imposed for the taxable year by this title and
by Title III shall be credited with the amount of any income,
war-profits and excess-profits taxes paid during the taxable year

act of 1918 353

to any foreign country, upon income derived from sources
therein, or to any possession of the United States.

If accrued taxes when paid differ from the amounts claimed
as credits by the corporation, or if any tax paid is refunded in
whole or in part, the corporation shall at once notify the Com-
missioner who shall redetermine the amount of the taxes due
under this title and under Title III for the year or years affected,
and the amount of taxes due upon such redetermination, if any,
shall be paid by the corporation upon notice and demand by
the Collector, or the amount of taxes overpaid, if any, shall be
credited or refunded to the corporation in accordance with the
provisions of section 252. In the case of such a tax accrued but
not paid, the Commissioner as a condition precedent to the al-
lowance of this credit may require the corporation to give a
bond with sureties satisfactory to and to be approved by him
in such penal sum as he may require conditioned for the pay-
ment by the taxpayer of any amount of taxes found due upon
any such redetermination; and the bond herein prescribed shall
contain such further conditions as the Commissioner may re-
quire.

(b) This credit shall be allowed only if the taxpayer furnishes
evidence satisfactory to the Commissioner showing the amount
of income derived from sources within such foreign country or
such possession of the United States, as the case may be, and
all other information necessary for the computation of such
credit.

(c) If a domestic corporation makes a return for a fiscal year
beginning in 1917 and ending in 1918, only that proportion of
this credit shall be allowed which the part of such period within
the calendar year 1918 bears to the entire period.

Corporation Returns

Section 239. That every corporation subject to taxation
under this title and every personal service corporation shall
make a return, stating specifically the items of its gross income
and the deductions and credits allowed by this title. The re-
turn shall be sworn to by the president, vice-president, or other

354 act of 1918

principal officer and by the treasurer or assistant treasurer.
If any foreign corporation has no office or place of business in
the United States but has an agent in the United States, the
return shall be made by the agent. In cases where receivers,
trustees in bankruptcy, or assignees are operating the property
or business or corporations, such receivers, trustees, or assignees
shall make returns for such corporations in the same manner
and form as corporations are required to make returns. Any
tax due on the basis of such returns made by receivers, trustees,
or assignees shall be collected in the same manner as if collected
from the corporations of whose business or property they have
custody and control.

Returns made under this section shall be subject to the pro-
visions of sections 226 and 228. When return is made under
section 226 the credit provided in subdivision (c) of section
236 shall be reduced to an amount which bears the same
ratio to the full credit therein provided as the number of
months in the period for which such return is made bears to
twelve months.

Consolidated Returns

Section 240. (a) That corporations which are affiliated
within the meaning of this section shall, under regulations to be
prescribed by the Commissioner with the approval of the Secre-
tary, make a consolidated return of net income and invested
capital for the purposes of this title and Title III, and the taxes
thereunder shall be computed and determined upon the basis
of such return: Provided, That there shall be taken out of such
consolidated net income and invested capital, the net income
and invested capital of any such affiliated corporation organized
after August 1, 1914, and not successor to a then existing busi-
ness, 50 per centum or more of whose gross income consists of
gains, profits, commissions, or other income, derived from a
government contract or contracts made between April 6, 1917,
and November 11, 1918, both dates inclusive. In such case the
corporation so taken out shall be separately assessed on the basis
of its own invested capital and net income and the remainder of

act of 1918 355

such affiliated group shall be assessed on the basis of the re-
maining consolidated invested capital and net income.

In any case in which a tax is assessed upon the basis of a
consolidated return, the total tax shall be computed in the first
instance as a unit and shall then be assessed upon the respective
affiliated corporations in such proportions as may be agreed upon
among them, or, in the absence of any such agreement, then
on the basis of the net income properly assignable to each.
There shall be allowed in computing the income tax only one
specific credit of $2,000 (as provided in section 236); in com-
puting the war-profits credit (as provided in section 311) only
one specific exemption of $3,000; and in computing the excess-
profits credit (as provided in section 312) only one specific
exemption of $3,000.

(b) For the purpose of this section two or more domestic
corporations shall be deemed to be affiliated (1) if one corpora-
tion owns directly or controls through closely affiliated interests
or by a nominee or nominees substantially all the stock of the
other or others, or (2) if substantially all the stock of two or more
corporations is owned or controlled by the same interests.

(c) For the purposes of section 238 a domestic corporation
which owns a majority of the voting stock of a foreign corpora-
tion shall be deemed to have paid the same proportion of any
income, war-profits and excess-profits taxes paid (but not
including taxes accrued) by such foreign corporation during the
taxable year to any foreign country or to any possession of the
United States upon income derived from sources without the
United States, which the amount of any dividends (not deduc-
tible under section 234) received by such domestic corporation
from such foreign corporation during the taxable year bears to
the total taxable income of such foreign corporation upon or with
respect to which such taxes were paid: Provided, That in no such
case shall the amount of the credit for such taxes exceed the
amount of such dividends (not deductible under section 234)
received by such domestic corporation during the taxable year.

356 act op 1918

Time and Place for Filing Returns

Section 241. (a) That returns of corporations shall be made
at the same time as is provided in subdivision (a) of section 227.

(b) Returns shall be made to the collector of the district in
which is located the principal place of business or principal office
or agency of the corporation, or, if it has no principal place of
business or principal office or agency in the United States, then
to the collector at Baltimore, Maryland.

PABT IV. ADMINISTRATIVE PROVISIONS

Payment of Taxes

Section 250. (a) That except as otherwise provided in this
section and sections 221 and 237 the tax shall be paid in four
installments, each consisting of one-fourth of the total amount
of the tax. The first installment shall be paid at the time fixed
by law for filing the return, and the second installment shall be
paid on the fifteenth day of the third month, the third install-
ment on the fifteenth day of the sixth month, and the fourth
installment on the fifteenth day of the ninth month, after the
time fixed by law for filing the return. Where an extension of
time for filing a return is granted the time for payment of the
first installment shall be postponed until the date of the expira-
tion of the period of the extension, but the time for payment of
the other installments shall not be postponed unless the Com-
missioner so provides in granting the extension. In any case in
which the time for the payment of any installment is at the
request of the taxpayer thus postponed, there shall be added as
part of such installment interest thereon at the rate of J^ of
1 per centum per month from the time it would have been due if
no extension had been granted, until paid. If any installment is
not paid when due, the whole amount of the tax unpaid shall
become due and payable upon notice and demand by the col-
lector.

The tax may at the option of the taxpayer be paid in a single
payment instead of in installments, in which case the total

act of 1918 357

amount shall be paid on or before the time fixed by law for filing
the return, or, where an extension of time for filing the return has
been granted, on or before the expiration of the period of such
extension.

(b) As soon as practicable after the return is filed, the Com-
missioner shall examine it. It it then appears that the correct
amount of the tax is greater or less than that shown in the re-
turn, the installments shall be recomputed. If the amount
already paid exceeds that which should have been paid on the
basis of the installments as recomputed, the excess so paid shall
be credited against the subsequent installments; and if the
amount already paid exceeds the correct amount of the tax, the
excess shall be credited or refunded to the taxpayer in accord-
ance with the provisions of section 252.

If the amount already paid is less than that which should
have been paid, the difference shall, to the extent not covered by
any credits then due to the taxpayer under section 252, be paid
upon notice and demand by the collector. In such case if the
return is made in good faith and the understatement of the
amount in the return is not due to any fault of the taxpayer,
there shall be no penalty because of such understatement. If
the understatement is due to negligence on the part of the tax-
payer, but without intent to defraud, there shall be added as
part of the tax 5 per centum of the total amount of the defi-
ciency, plus interest at the rate of 1 per centum per month on
the amount of the deficiency of each installment from the time
the installment was due.

If the understatement is false or fraudulent with intent to
evade the tax, then, in lieu of the penalty provided by section
3176 of the Revised Statutes, as amended, for false or fraudulent
returns willfully made, but in addition to other penalties pro-
vided by law for false or fraudulent returns, there shall be added
as part of the tax 50 per centum of the amount of the deficiency.

(c) If the return is made pursuant to section 3176 of the
Revised Statutes as amended, the amount of tax determined to
be due under such return shall be paid upon notice and demand
by the collector.

(d) Except in the case of false or fraudulent returns with

358 act op 1918

intent to evade the tax, the amount of tax due under any return
shall be determined and assessed by the Commissioner within
five years after the return was due or was made, and no suit or
proceeding for the collection of any tax shall be begun after the
expiration of five years after the date when the return was due
or was made. In the case of such false or fraudulent returns, the
amount of tax due may be determined at any time after the
return is filed, and the tax may be collected at any time after
it becomes due.

(e) If any tax remains unpaid after the date when it is due,
and for ten days after notice and demand by the collector, then,
except in the case of estates of insane, deceased, or insolvent
persons, there shall be added as part of the tax the sum of 5 per
centum on the amount due but unpaid, plus interest at the rate
of 1 per centum per month upon such amount from the time it
became due: Provided, That as to any such amount which is the
subject of a bona fide claim for abatement such sum of 5 per
centum shall not be added and the interest from the time the
amount was due until the claim is decided shall be at the rate
of J^ of 1 per centum per month.

In the case of the first installment provided for in subdivision
(a) the instructions printed on the return shall be deemed suffi-
cient notice of the date when the tax is due and sufficient de-
mand, and the taxpayer's computation of the tax on the return
shall be deemed sufficient notice of the amount due.

(f ) In any case in which in order to enforce payment of a tax
it is necessary for a collector to cause a warrant of distraint to
be served, there shall also be added as part of the tax the sum
of $5.

(g) If the Commissioner finds that a taxpayer designs quickly
to depart from the United States or to remove his property
therefrom, or to conceal himself or his property therein, or to do
any other act tending to prejudice or to render wholly or partly
ineffectual proceedings to collect the tax for the taxable year
then last past or the taxable year then current unless such pro-
ceedings be brought without delay, the Commissioner shall
declare the taxable period for such taxpayer terminated at the
end of the calendar month then last past and shall cause notice

act of 1918 359

of such finding and declaration to be given the taxpayer, to-
gether with a demand for immediate payment of the tax for
the taxable period so declared terminated and of the tax for the
preceding taxable year or so much of said tax as is unpaid,
whether or not the time otherwise allowed by law for filing
return and paying the tax has expired; and such taxes shall
thereupon become immediately due and payable. In any action
or suit brought to enforce payment of taxes made due and
payable by virtue of the provisions of this subdivision the find-
ing of the Commissioner, made as herein provided, whether
made after notice to the taxpayer or not, shall be for all pur-
poses presumptive evidence of the taxpayer's design. A tax-
payer who is not in default in making any return or paying
income, war profits, or excess-profits tax under any Act of
Congress may furnish to the United States, under regulations to
be prescribed by the Commissioner with the approval of the
Secretary, security approved by the Commissioner that he will
duly make the return next thereafter required to be filed and pay
the tax next thereafter required to be paid. The Commissioner
may approve and accept in like manner security for return and
payment of taxes made due and payable by virtue of the provi-
sions of this subdivision, provided the taxpayer has paid in full
all other income, war profits, or excess-profits taxes due from
him under any Act of Congress. If security is approved and
accepted pursuant to the provisions of this subdivision and such
further or other security with respect to the tax or taxes covered
thereby is given as the Commissioner shall from time to time
find necessary and require, payment of such taxes shall not be
enforced by any proceedings under the provisions of this sub-
division prior to the expiration of the time otherwise allowed for
paying such respective taxes.

Receipts for Taxes

Section 251. That every collector to whom any payment of
any tax is made under the provisions of this title shall upon
request give to the person making such payment a full written
or printed receipt, stating the amount paid and the particular

360 act of 1918

account for which such payment was made; and whenever any
debtor pays taxes on account of payments made or to be made
by him to separate creditors the collector shall, if requested by
such debtor, give a separate receipt for the tax paid on account
of each creditor in such form that the debtor can conveniently
produce such receipts separately to his several creditors in
satisfaction of their respective demands up to the amounts
stated in the receipts; and such receipt shall be sufficient evi-
dence in favor of such debtor to justify him in withholding from
his next payment to his creditor the amount therein stated; but
the creditor may, upon giving to his debtor a full written receipt
acknowledging the payment to him of any sum actually paid
and accepting the amount of tax paid as aforesaid (specifying
the same) as a further satisfaction of the debt to that amount,
require the surrender to him of such collector's receipt.

Refunds

Section 252. That if, upon examination of any return of
income made pursuant to this Act, the Act of August 5, 1909,
entitled "An Act to provide revenue, equalize duties, and en-
courage the industries of the United States, and for other
purposes," the Act of October 3, 1913, entitled "An Act to
reduce tariff duties and to provide revenue for the Government,
and for other purposes," the Revenue Act of 1916, as amended,
or the Revenue Act of 1917, it appears that an amount of in-
come, war profits or excess-profits tax has been paid in excess of
that properly due, then, notwithstanding the provisions of
section 3228 of the Revised Statutes, the amount of the excess
shall be credited against any income, war profits or excess-profits
taxes, or installment thereof, then due from the taxpayer under
any other return, and any balance of such excess shall be imme-
diately refunded to the taxpayer: Provided, That no such credit
or refund shall be allowed or made after five years from the date
when the return was due, unless before the expiration of such five
years a claim therefor is filed by the taxpayer.

act of 1918 361

Penalties

Section 253. That any individual, corporation, or partner-
ship required under this title to pay or collect any tax, to make
a return or to supply information, who fails to pay or collect
such tax, to make such return, or to supply such information at
the time or times required under this title, shall be liable to a
penalty of not more than $1,000. Any individual, corporation,
or partnership, or any officer or employee of any corporation or
member or employee of a partnership, who willfully refuses to
pay or collect such tax, to make such return, or to supply such
information at the time or times required under this title, or who
willfully attempts in any manner to defeat or evade the tax
imposed by this title, shall be guilty of a misdemeanor and shall
be fined not more than $10,000 or imprisoned for not more than
one year, or both, together with the costs of prosecution.

Returns of Payments of Dividends

Section 254. That every corporation subject to the tax
imposed by this title and every personal service corporation
shall, when required by the Commissioner, render a correct
return duly verified under oath, of its payments of dividends,
stating the name and address of each stockholder, the number of
shares owned by him, and the amount of dividends paid to him.

Returns of Brokers

Section 255. That every individual, corporation, or partner-
ship doing business as a broker shall, when required by the
Commissioner, render a correct return duly verified under oath,
under such rules and regulations as the Commissioner, with the
approval of the Secretary, may prescribe, showing the names of
customers for whom such individual, corporation, or partnership
has transacted any business, with such details as to the profits,
losses or other information which the Commissioner may require,
as to each of such customers, as will enable the Commissioner to
determine whether all income tax due on profits or gains of such
customers has been paid.

362 act of 1918

Information at Source

Section 256. That all individuals, corporations, and partner-
ships, in whatever capacity acting, including lessees or mort-
gagors of real or personal property, fiduciaries, and employers,
making payment to another individual, corporation, or partner-
ship, of interest, rent, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed, or
determinable gains, profits, and income (other than payments
described in sections 254 and 255), of $1,000 or more in any
taxable year, or, in the case of such payments made by the
United States, the officers or employees of the United States
having information as to such payments and required to make
returns in regard thereto by the regulations hereinafter provided
for, shall render a true and accurate return to the Commissioner,
under such regulations and in such form and manner and to such
extent as may be prescribed by him with the approval of the
Secretary, setting forth the amount of such gains, profits, and
income, and the name and address of the recipient of such
payment.

Such returns may be required, regardless of amounts, (1) in
the case of payments of interest upon bonds, mortgages, deeds of
trust, or other similar obligations of corporations, and (2) in the
case of collections of items (not payable in the United States) of
interest upon the bonds of foreign countries and interest upon
the bonds of and dividends from foreign corporations by indi-
viduals, corporations, or partnerships, undertaking as a matter
of business or for profit the collection of foreign payments of such
interest or dividends by means of coupons, checks, or bills
of exchange.

When necessary to make effective the provisions of this section
the name and address of the recipient of income shall be fur-
nished upon demand of the individual, corporation, or part-
nership paying the income.

The provisions of this section shall apply to the calendar year
1918 and each calendar year thereafter, but shall not apply to
the payment of interest on obligations of the United States.

act of 1918 363

Returns to be Public Records

Section 257. That returns upon which the tax has been
determined by the Commissioner shall constitute public records;
but they shall be open to inspection only upon order of the
President and under rules and regulations prescribed by the
Secretary and approved by the President: Provided, That the
proper officers of any State imposing an income tax may, upon
the request of the governor thereof, have access to the returns of
any corporation, or to an abstract thereof showing the name and
income of the corporation, at such times and in such manner as
the Secretary may prescribe: Provided further, That all bona
fide stockholders of record owning 1 per centum or more of the
outstanding stock of any corporation shall, upon making re-
quest of the Commissioner, be allowed to examine the annual
income returns of such corporation and of its subsidiaries. Any
stockholder who pursuant to the provisions of this section is
allowed to examine the return of any corporation, and who
makes known in any manner whatever not provided by law the
amount or source of income, profits, losses, expenditures, or any
particular thereof, set forth or disclosed in any such return, shall
be guilty of a misdemeanor and be punished by a fine not ex-
ceeding $1,000, or by imprisonment not exceeding one year, or
both.

The Commissioner shall as soon as practicable in each year
cause to be prepared and made available to public inspection in
such manner as he may determine, in the office of the collector
in each internal-revenue district and in such other places as he
may determine, lists containing the names and the post-office
addresses of all individuals making income-tax returns in such
district.

Publication of Statistics

Section 258. That the Commissioner, with the approval of
the Secretary, shall prepare and publish annually statistics
reasonably available with respect to the operation of the income,
war profits and excess-profits tax laws, including classifications
of taxpayers and of income, the amounts allowed as deductions,

364 act of 1918

exemptions, and credits, and any other facts deemed pertinent
and valuable.

Collection of Foreign Items

Section 259. That all individuals, corporations, or partner-
ships undertaking as a matter of business or for profit the
collection of foreign payments of interest or dividends by means
of coupons, checks or bills of exchange shall obtain a license from
the Commissioner and shall be subject to such regulations
enabling the Government to obtain the information required
under this title as the Commissioner, with the approval of the
Secretary, shall prescribe; and whoever knowingly undertakes to
collect such payments without having obtained a license there-
for, or without complying with such regulations, shall be guilty
of a misdemeanor and shall be fined not more than $5,000, or
imprisoned for not more than one year, or both.

Citizens of United States Possessions

Section 260. That any individual who is a citizen of any
possession of the United States (but not otherwise a citizen of
the United States) and who is not a resident of the United States,
shall be subject to taxation under this title only as to income
derived from sources within the United States, and in such case
the tax shall be computed and paid in the same manner and
subject to the same conditions as in the case of other persons who
are taxable only as to income derived from such sources.

Porto Rico and Philippine Islands

Section 261. That in Porto Rico and the Philippine Islands
the income tax shall be levied, assessed, collected, and paid
in accordance with the provisions of the Revenue Act of 1916
as amended.

Returns shall be made and taxes shall be paid under Title I
of such Act in Porto Rico or the Philippine Islands, as the case
may be, by (1) every individual who is a citizen or resident of

act op 1918 365

Porto Rico or the Philippine Islands or derives income from
sources therein, and (2) every corporation created or organized
in Porto Rico or the Philippine Islands or deriving income from
sources therein. An individual who is neither a citizen nor a
resident of Porto Rico or the Philippine Islands but derives
income from sources therein, shall be taxed in Porto Rico or
the Philippine Islands as a nonresident alien individual, and a
corporation created or organized outside Porto Rico or the
Philippine Islands and deriving income from sources therein
shall be taxed in Porto Rico or the Philippine Islands as a foreign
corporation. For the purposes of section 216 and of paragraph
(6) of subdivision (a) of section 234 a tax imposed in Porto Rico
or the Philippine Islands upon the net income of a corporation
shall not be deemed to be a tax under this title.

The Porto Rican or Philippine Legislature shall have power by
due enactment to amend, alter, modify, or repeal the income
tax laws in force in Porto Rico or the Phillippine Islands, respec-
tively.

Title III. — Wab-Pbofits and Excess-Pbofits Tax

PAET I. — GENEBAL DEFINITIONS

Section 300. That when used in this title the terms "tax-
able year," "fiscal year," "personal service corporation,"
"paid or accrued," and "dividends" shall have the same mean-
ing as provided for the purposes of income tax in sections 200
and 201. The first taxable year for the purposes of this title
shall be the same as the first taxable year for the purposes of the
income tax under Title II.

PABT II. — IMPOSITION OF TAX

Section 301. (a) That in lieu of the tax imposed by Title II
of the Revenue Act of 1917j but in addition to the other taxes
imposed by this Act, there shall be levied, collected, and paid for
the taxable year 1918 upon the net income of every corporation
a tax equal to the sum of the following:

366 act of 1918

First Bracket

30 per centum of the amount of the net income in excess of
the excess-profits credit (determined under section 312) and not
in excess of 20 per centum of the invested capital;

Second Bracket

65 per centum of the amount of the net income in excess of
20 per centum of the invested capital;

Third Bracket

The sum, if any, by which 80 per centum of the amount of the
net income in excess of the war-profits credit (determined under
section 311) exceeds the amount of the tax computed under the
first and second brackets.

(b) For the taxable year 1919 and each taxable year there-
after there shall be levied, collected, and paid upon the net
income of every corporation (except corporations taxable under
subdivision (c) of this section) a tax equal to the sum of the
following:

First Bracket

20 per centum of the amount of the net income in excess of
the excess-profits credit (determined under section 312) and not
in excess of 20 per centum of the invested capital;

Second Bracket

40 per centum of the amount of the net income in excess of
20 per centum of the invested capital.

(c) For the taxable year 1919 and each taxable year there-
after there shall be levied, collected, and paid upon the net in-
come of every corporation which derives in such year a net
income of more than $10,000 from any government contract or
contracts made between April 6, 1917, and November 11, 1918,
both dates inclusive, a tax equal to the sum of the following:

act or 1918 367

(1) Such a portion of a tax computed at the rates specified in
subdivision (a) as the part of the net income attributable to
such government contract or contracts bears to the entire net
income. In computing such tax the excess-profits credit and the
war-profits credit applicable to the taxable year shall be used;

(2) Such a portion of a tax computed at the rates specified in
subdivision (b) as the part of the net income not attributable to
such government contract or contracts bears to the entire net
income.

For the purpose of determining the part of the net income
attributable to such government contract or contracts, the
proper apportionment and allocation of the deductions with
respect to gross income derived from such government contract
or contracts and from other sources, respectively, shall be
determined under rules and regulations prescribed by the
Commissioner with the approval of the Secretary.

(d) In any case where the full amount of the excess-profits
credit is not allowed under the first bracket of subdivision (a) or
(b), by reason of the fact that such credit is in excess of 20 per
centum of the invested capital, the part not so allowed shall be
deducted from the amount in the second bracket.

(e) For the purposes of the Act approved March 21, 1918,
entitled "An Act to provide for the operation of transportation
systems while under Federal control, for the just compensation
of their owners and for other purposes," the tax imposed by this
title shall be treated as levied by an Act in amendment of
Title II of the Revenue Act of 1917.

Section 302. That the tax imposed by subdivision (a) of
section 301 shall in no case be more than 30 per centum of the
amount of the net income in excess of $3,000 and not in excess of
$20,000, plus 80 per centum of the amount of the net income in
excess of $20,000; the tax imposed by subdivision (b) of section
301 shall in no case be more than 20 per centum of the amount
of the net income in excess of $3,000 and not in excess of $20,000,
plus 40 per centum of the amount of the net income in excess of
$20,000; and the above limitations shall apply to the taxes com-
puted under subdivisions (a) and (b) of section 301, respectively,
when used in subdivision (c) of that section. Nothing in this

368 act op 1918

section shall be construed in such manner as to increase the tax
imposed by section 301.

Section 303. That if part of the net income of a corporation
is derived (1) from a trade or business (or a branch of a trade or
business) in which the employment of capital is necessary, and
(2) a part (constituting not less than 30 per centum of its total
net income) is derived from a separate trade or business (or a dis-
tinctly separate branch of the trade or business) which if con-
stituting the sole trade or business would bring it within the class
of "personal service corporations," then (under regulations
prescribed by the Commissioner with the approval of the Secre-
tary) the tax upon the first part of such net income shall be
separately computed (allowing in such computation only the
same proportionate part of the credits authorized in sections
311 and 312), and the tax upon the second part shall be the same
percentage thereof as the tax so computed upon the first part is
of such first part: Provided, That the tax upon such second part
shall in no case be less than 20 per centum thereof, unless the
tax upon the entire net income, if computed without benefit of
this section, would constitute less than 20 per centum of such
entire net income, in which event the tax shall be determined
upon the entire net income, without reference to this section, as
other taxes are determined under this title. The total tax
computed under this section shall be subject to the limitations
provided in section 302.

Section 304. (a) That the corporations enumerated in sec-
tion 231 shall, to the extent that they are exempt from income
tax under Title II, be exempt from taxation under this title.

(b) Any corporation whose net income for the taxable year is
less than $3,000 shall be exempt from taxation under this title.

(c) In the case of any corporation engaged in the mining of
gold, the portion of the net income derived from the mining of
gold shall be exempt from the tax imposed by this title, and the
tax on the remaining portion of the net income shall be the
proportion of a tax computed without the benefit of this subdi-
vision which such remaining portion of the net income bears
to the entire net income.

Section 305. That if a tax is computed under this title for a

act of 1918 369

period of less than twelve months, the specific exemption of
$3,000, wherever referred to in this title, shall be reduced to an
amount which is the same proportion of $3,000 as the number of
months in the period is of twelve months.

PART III. — CREDITS

Section 310. That as used in this title the term "prewar
period" means the calendar years 1911, 1912, and 1913, or, if a
corporation was not in existence during the whole of such period,
then as many of such years during the whole of which the cor-
poration was in existence.

Section 311. (a) That the war-profits credit shall consist
of the sum of:

(1) A specific exemption of $3,000; and

(2) An amount equal to the average net income of the cor-
poration for the prewar period, plus or minus, as the case may
be, 10 per centum of the difference between the average invested
capital for the prewar period and the invested capital for the
taxable year. If the tax is computed for a period of less than
twelve months such amount shall be reduced to the same pro-
portion thereof as the number of months in the period is of
twelve months.

(b) If the corporation had no net income for the prewar
period, or if the amount computed under paragraph (2) of
subdivision (a) is less than 10 per centum of its invested capital
for the taxable year, then the war-profits credit shall be the
sum of:

(1) A specific exemption of $3,000; and

(2) An amount equal to 10 per centum of the invested capital
for the taxable year.

(c) If the corporation was not in existence during the whole
of at least one calendar year during the prewar period, then,
except as provided in subdivision (d), the war-profits credit
shall be the sum of:

(1) A specific exemption of $3,000; and

(2) An amount equal to the same percentage of the invested
capital of the taxpayer for the taxable year as the average

370 act of 1918

percentage of net income to invested capital, for the prewar
period, of corporations engaged in a trade or business of the
same general class as that conducted by the taxpayer; but such
amount shall in no case be less than 10 per centum of the in-
vested capital of the taxpayer for the taxable year. Such
average percentage shall be determined by the Commissioner on
the basis of data contained in returns made under Title II of
the Revenue Act of 1917, and the average known as the median
shall be used. If such average percentage has not been deter-
mined and published at least 30 days prior to the time when the
return of the taxpayer is due, then for purposes of such return
10 per centum shall be used in lieu thereof; but such average
percentage when determined shall be used for the purposes of
section 250 in determining the correct amount of the tax.

(d) The war-profits credit shall be determined in the manner
provided in subdivision (b) instead of in the manner provided
in subdivision (c), in the case of any corporation which was not
in existence during the whole of at least one calendar year during
the prewar period, if (1) a majority of its stock at any time dur-
ing the taxable year is owned or controlled, directly or indirectly,
by a corporation which was in existence during the whole of at
least one calendar year during the prewar period, or if (2) 50 per
centum or more of its gross income (as computed under section
233 for income tax purposes) consists of gains, profits, commis-
sions, or other income, derived from a government contract or
contracts made between April 6, 1917, and November 11, 1918,
both dates inclusive.

(e) A foreign corporation shall not be entitled to a specific
exemption of $3,000.

Section 312. That the excess-profits credit shall consist of a
specific exemption of $3,000 plus an amount equal to 8 per
centum of the invested capital for the taxable year.

A foreign corporation shall not be entitled to the specific
exemption of $3,000.

act op 1918 371

part iv. — net income

Section 320. (a) That for the purpose of this title the net
income of a corporation shall be ascertained and returned —

(1) For the calendar years 1911 and 1912 upon the same basis
and in the same manner as provided in section 38 of the Act
entitled "An Act to provide revenue, equalize duties, and
encourage the industries of the United States, and for other
purposes," approved August 5, 1909, except that taxes imposed
by such section and paid by the corporation within the year
shall be included;

(2) For the calendar year 1913 upon the same basis and in the
same manner as provided in Section II of the Act entitled "An
Act to reduce tariff duties and to provide revenue for the Gov-
ernment, and for other purposes," approved October 3, 1913,
except that taxes imposed by section 38 of such Act of August 5,
1909, and paid by the corporation within the year shall be in-
cluded, and except that the amounts received by it as dividends
upon the stock or from the net earnings of other corporations
subject to the tax imposed by Section II of such Act of Octo-
ber 3, 1913, shall be deducted; and

(3) For the taxable year upon the same basis and in the same
manner as provided for income tax purposes in Title II of this
Act.

(b) The average net income for the prewar period shall be
determined by dividing the number of years within that period
during the whole of which the corporation was in existence into
the sum of the net income for such years, even though there may
have been no net income for one or more of such years.

part v. — invested capital

Section 325. (a) That as used in this title —
The term "intangible property" means patents, copyrights,
secret processes and formula?, good will, trade-marks, trade-
brands, franchises, and other like property;

The term "tangible property" means stocks, bonds, notes,
and other evidences of indebtedness, bills and accounts receiv-

372 act op 1918

able, leaseholds, and other property other than intangible
property;

The term "borrowed capital" means money or other property
borrowed, whether represented by bonds, notes, open accounts,
or otherwise;

The term "inadmissible assets" means stocks, bonds, and
other obligations (other than obligations of the United States),
the dividends or interest from which is not included in com-
puting net income, but where the income derived from such
assets consists in part of gain or profit derived from the sale or
other disposition thereof, or where all or part of the interest de-
rived from such assets is in effect included in the net income
because of the limitation on the deduction of interest under
paragraph (2) of subdivision (a) of section 234, a corresponding
part of the capital invested in such assets shall not be deemed to
be inadmissible assets. The term "admissible assets" means
all assets other than inadmissible assets, valued in accordance
with the provisions of subdivision (a) of section 326, section 330,
and section 331.

(b) For the purpose of this title, the par value of stock or
shares shall, in the case of stock or shares issued at a nominal
value or having no par value, be deemed to be the fair market
value as of the date or dates of issue of such stock or shares.

Section 326. (a) That as used in this title the term "in-
vested capital" for any year means (except as provided in sub-
divisions (b) and (c) of this section) :

(1) Actual cash bona fide paid in for stock or shares;

(2) Actual cash value of tangible property, other than cash,
bona fide paid in for stock or shares, at the time of such pay-
ment, but in no case to exceed the par value of the original stock
or shares specifically issued therefor, unless the actual cash value
of such tangible property at the time paid in is shown to the
satisfaction of the Commissioner to have been clearly and
substantially in excess of such par value, in which case such
excess shall be treated as paid-in surplus: Provided, That the
Commissioner shall keep a record of all cases in which tangible
property is included in invested capital at a value in excess of the
stock or shares issued therefor, containing the name and ad-

act of 1918 373

dress of each taxpayer, the business in which engaged, the
amount of invested capital and net income shown by the return,
the value of the tangible property at the time paid in, the par
value of the stock or shares specifically issued therefor, and the
amount included under this paragraph as paid-in surplus. The
Commissioner shall furnish a copy of such record and other
detailed information with respect to such cases when required
by resolution of either House of Congress, without regard to the
restrictions contained in section 257;

(3) Paid-in or earned surplus and undivided profits; not
including surplus and undivided profits earned during the year;

(4) Intangible property bona fide paid in for stock or shares
prior to March 3, 1917, in an amount not exceeding (a) the ac-
tual cash value of such property at the time paid in, (b) the par
value of the stock or shares issued therefor, or (c) in the aggre-
gate 25 per centum of the par value of the total stock or shares
of the corporation outstanding on March 3, 1917, whichever
is lowest;

(5) Intangible property bona fide paid in for stock or shares
on or after March 3, 1917, in an amount not exceeding (a) the
actual cash value of such property at the time paid in, (b) the
par value of the stock or shares issued therefor, or (c) in the
aggregate 25 per centum of the par value of the total stock or
shares of the corporation outstanding at the beginning of the
taxable year, whichever is lowest: Provided, That in no case
shall the total amount included under paragraphs (4) and (5)
exceed in the aggregate 25 per centum of the par value of the
total stock or shares of the corporation outstanding at the
beginning of the taxable year; but

(b) As used in this title the term "invested capital" does not
include borrowed capital.

(c) There shall be deducted from invested capital as above
defined a percentage thereof equal to the percentage which the
amount of inadmissible assets is of the amount of admissible and
inadmissible assets held during the taxable year.

(d) The invested capital for any period shall be the average
invested capital for such period, but in the case of a corporation
making a return for a fractional part of a year, it shall (except

374 act of 1918

for the purpose of paragraph (2) of subdivision (a) of section
311) be the same fractional part of such average invested capital.

The average invested capital for the prewar period shall be
determined by dividing the number of years within that period
during the whole of which the corporation was in existence into
the sum of the average invested capital for such years.

Section 327. — That in the following cases the tax shall be
determined as provided in section 328:

(a) Where the Commissioner is unable to determine the
invested capital as provided in section 326;

(b) In the case of a foreign corporation;

(c) Where a mixed aggregate of tangible property and in-
tangible property has been paid in for stock or for stock and
bonds and the Commissioner is unable satisfactorily to deter-
mine the respective values of the several classes of property at
the time of payment, or to distinguish the classes of property
paid in for stock and for bonds, respectively;

(d) Where upon application by the corporation the Com-
missioner finds and so declares of record that the tax if deter-
mined without benefit of this section would, owing to abnormal
conditions affecting the capital or income of the corporation,
work upon the corporation an exceptional hardship evidenced by
gross disproportion between the tax computed without benefit of
this section and the tax computed by reference to the represen-
tative corporations specified in section 328. This subdivision
shall not apply to any case (1) in which the tax (computed
without benefit of this section) is high merely because the cor-
poration earned within the taxable year a high rate of profits
upon a normal invested capital nor (2) in which 50 per centum or
more of the gross income of the corporation for the taxable year
(computed under section 233 of Title II) consists of gains,
profits, commissions, or other income, derived on a cost-plus
basis from a government contract or contracts made between
April 6, 1917, and November 11, 1918, both dates inclusive.

Section 328. (a) In the cases specified in section 327 the
tax shall be the amount which bears the same ratio to the net
income of the taxpayer (in excess of the specific exemption of
83,000) for the taxable year, as the average tax of representative

act op 1918 375

corporations engaged in a like or similar trade or business, bears
to their average net income (in excess of the specific exemption
of $3,000) for such year. In the case of a foreign corporation
the tax shall be computed without deducting the specific exemp-
tion of $3,000 either for the taxpayer or the representative
corporations.

In computing the tax under this section the Commissioner
shall compare the taxpayer only with representative corpora-
tions whose invested capital can be satisfactorily determined
under section 326 and which are, as nearly as may be, similarly
circumstanced with respect to gross income, net income, profits
per unit of business transacted and capital employed, the
amount and rate of war profits or excess profits, and all other
relevant facts and circumstances.

(b) For the purposes of subdivision (a) the ratios between
the average tax and the average net income of representative
corporations shall be determined by the Commissioner in accord-
ance with regulations prescribed by him with the approval
of the Secretary.

In cases in which the tax is to be computed under this section,
if the tax as computed without the benefit of this section is less
than 50 per centum of the net income of the taxpayer, the install-
ments shall in the first instance be computed upon the basis of
such tax; but if the tax so computed is 50 per centum or more
of the net income, the installments shall in the first instance be
computed upon the basis of a tax equal to 50 per centum of
the net income. In any case, the actual ratio when ascertained
shall be used in determining the correct amount of the tax. If
the correct amount of the tax when determined exceeds 50 per
centum of the net income, any excess of the correct installments
over the amounts actually paid shall on notice and demand be
paid together with interest at the rate of Yi of 1 per centum per
month on such excess from the time the installment was due.

(c) The Commissioner shall keep a record of all cases in which
the tax is determined in the manner prescribed in subdivision
(a), containing the name and address of each taxpayer, the
business in which engaged, the amount of invested capital and
net income shown by the return, and the amount of invested

376 act of 1918

capital as determined under such subdivision. The Commis-
sioner shall furnish a copy of such record and other detailed
information with respect to such cases when required by resolu-
tion of either House of Congress, without regard to the restric-
tions contained in section 257.

PART VI. — REORGANIZATIONS

Section 330. That in the case of the reorganization, consoli-
dation, or change of ownership after January 1, 1911, of a trade
or business now carried on by a corporation, the corporation
shall for the purposes of this title be deemed to have been in
existence prior to that date, and the net income and invested
capital of such predecessor trade or business for all or any part
of the prewar period to the organization of the corporation now
carrying on such trade or business shall be deemed to have been
the net income and invested capital of such corporation.

If such predecessor trade or business was carried on by a
partnership or individual the net income for the prewar period
shall, under regulations prescribed by the Commissioner with
the approval of the Secretary, be ascertained and returned as
nearly as may be upon the same basis and in the same manner as
provided for corporations in Title II, including a reasonable
deduction for salary or compensation to each partner or the
individual for personal services actually rendered.

In the case of the organization as a corporation before July 1,
1919, of any trade or business in which capital is a material
income-producing factor and which was previously owned by a
partnership or individual, the net income of such trade or busi-
ness from January 1, 1918, to the date of such reorganization
may at the option of the individual or partnership be taxed as
the net income of a corporation is taxed under Titles II and III;
in which event the net income and invested capital of such trade
or business shall be computed as if such corporation had been in
existence on and after January 1, 1918, and the undistributed
profits or earnings of such trade or business shall not be subject
to the surtax imposed in section 211, but amounts distributed
on or after January 1, 1918, from the earnings of such trade or

act of 1918 377

business shall be taxed to the recipients as dividends, and all the
provisions of Titles II and III relating to corporations shall, so
far as practicable, apply to such trade or business: Provided,
That this paragraph shall not apply to any trade or business the
net income of which for the taxable year 1918 was less than 20
per centum of its invested capital for such year: Provided
further, That any taxpayer who takes advantage of this para-
graph shall pay the tax imposed by section 1000 of this Act and
by the first subdivision of section 407 of the Revenue Act of
1916, as if such taxpayer had been a corporation on and after
January 1, 1918, with a capital stock having no par value.

If any asset of the trade or business in existence both during
the taxable year and any prewar year is included in the invested
capital for the taxable year but is not included in the invested
capital for such prewar year, or is valued on a different basis in
computing the invested capital for the taxable year and such
prewar year, respectively, then under rules and regulations to be
prescribed by the Commissioner with the approval of the
Secretary such readjustments shall be made as are necessary to
place the computation of the invested capital for such prewar
year on the basis employed in determining the invested capital
for the taxable year.

Section 331. In the case of the reorganization, consolidation,
or change of ownership of a trade or business, or change of
ownership of property, after March 3, 1917, if an interest or
control in such trade or business or property of 50 per centum or
more remains in the same persons, or any of them, then no
asset transferred or received from the previous owner shall, for
the purpose of determining invested capital, be allowed a greater
value than would have been allowed under this title in comput-
ing the invested capital of such previous owner if such asset had
not been so transferred or received: Provided, That if such pre-
vious owner was not a corporation, then the value of any asset
so transferred or received shall be taken at its cost of acquisition
(at the date when acquired by such previous owner) with proper
allowance for depreciation, impairment, betterment or develop-
1 ment, but no addition to the original cost shall be made for any
charge or expenditure deducted as expense or otherwise on or

378 act op 1918

after March 1, 1913, in computing the net income of such
previous owner foT purposes of taxation.

PAST VII. — MISCELLANEOUS

Section 335. (a) That if a corporation (other than a per-
sonal service corporation) makes return for a fiscal year be-
ginning in 1917 and ending in 1918, the tax for the first taxable
year under this title shall be the sum of:

(1) The same proportion of a tax for the entire period com-
puted under Title II of the Revenue Act of 1917 which the por-
tion of such period falling within the calendar year 1917 is of the
entire period, and (2) the same proportion of a tax for the entire
period computed under this title at the rates specified in sub-
division (a) of section 301 which the portion of such period
falling within the calendar year 1918 is of the entire period.

Any amount heretofore or hereafter paid on account of the
tax imposed for such fiscal year by Title II of the Revenue Act
of 1917 shall be credited toward the payment of the tax imposed
for such fiscal year by this title, and if the amount so paid ex-
ceeds the amount of the tax imposed by this title, the excess shall
be credited or refunded to the corporation in accordance with
the provisions of section 252.

(b) If a corporation makes return for a fiscal year beginning
in 1918 and ending in 1919, the tax for such fiscal year under
this title shall be the sum of: (1) the same proportion of a tax for
the entire period computed under subdivision (a) of section 301
which the portion of such period falling within the calendar year
1918 is of the entire period, and (2) the same proportion of a tax
for the entire period computed under subdivision (b) or (c) of
section 301 which the portion of such period falling within the
calendar year 1919 is of the entire period.

(c) If a partnership or a personal service corporation makes
return for a fiscal year beginning in 1917 and ending in 1918, it
shall pay the same proportion of a tax for the entire period
computed under Title II of the Revenue Act of 1917 which the
portion of such period falling within the calendar year 1917 is of
the entire period.

act of 1918 379

Any tax paid by a partnership or personal service corpora-
tion for any period beginning on or after January 1, 1918, shall
be immediately refunded to the partnership or corporation as a
tax erroneously or illegally collected.

Suction 336. That every corporation, not exempt under
section 304, shall make a return for the purposes of this title.
Such returns shall be made, and the taxes imposed by this title
shall be paid, at the same times and places, in the same manner,
and subject to the same conditions, as is provided in the case of
returns and payment of income tax by corporations for the
purposes of Title II, and all the provisions of that title not
inapplicable, including penalties, are hereby made applicable to
the taxes imposed by this title.

Section 337. That in the case of a bona fide sale of mines,
oil or gas wells, or any interest therein, where the principal value
of the property has been demonstrated by prospecting or ex-
ploration and discovery work done by the taxpayer, the portion
of the tax imposed by this title attributable to such sale shall
not exceed 20 per centum of the selling price of such property
or interest.

TITLE XIII. GENERAL ADMINISTRATIVE PROVISIONS

(d) (1) There is hereby created a board to be known as the
"Advisory Tax Board," hereinafter called the Board, and to be
composed of not to exceed six members to be appointed by the
Commissioner with the approval of the Secretary. The Board
shall cease to exist at the expiration of two years after the pas-
sage of this Act, or at such earlier time as the Commissioner with
the approval of the Secretary may designate.

Vacancies in the membership of the Board shall be filled in the
same manner as an original appointment. Any member shall be
subject to removal by the Commissioner with the approval of
the Secretary. The Commissioner with the approval of the
Secretary shall designate the chairman of the Board. Each
member shall receive an annual salary of $9,000, payable
monthly, together with actual necessary expenses when absent
from the District of Columbia on official business.

380 act of 1918

(2) The Commissioner may, and on the request of any
taxpayer directly interested shall, submit to the Board any
question relating to the interpretation or administration of the
income, war-profits or excess-profits tax laws, and the Board
shall report its findings and recommendations to the Commis-
sioner.

(3) The Board shall have its office in the Bureau of Internal
Revenue in the District of Columbia. The expenses and salaries
of members of the Board shall be audited, allowed, and paid out
of appropriations for collecting internal revenue, in the same
manner as expenses and salaries of employees of the Bureau of
Internal Revenue are audited, allowed, and paid.

(4) The Board shall have the power to summon witnesses,
take testimony, administer oaths and to require any person to
produce books, papers, documents or other data relating to any
matter under investigation by the Board. Any member of the
Board may sign subpoenas and members and employees of the
Bureau of Internal Revenue designated to assist the Board,
when authorized by the Board, may administer oaths, examine
witnesses, take testimony and receive evidence.

Section 1305. That all administrative, special, or stamp
provisions of law, including the law relating to the assessment of
taxes, so far as applicable, are hereby extended to and made a
part of this Act, and every person liable to any tax imposed by
this Act, or for the collection thereof, shall keep such records
and render, under oath, such statements and returns, and shall
comply with such regulations as the Commissioner, with the
approval of the Secretary, may from time to time prescribe.

Whenever in the judgment of the Commissioner necessary he
may require any person, by notice served upon him, to make a
return or such statements as he deems sufficient to show whether
or not such person is liable to tax.

The Commissioner, for the purpose of ascertaining the cor-
rectness of any return or for the purpose of making a return
where none has been made, is hereby authorized, by any revenue
agent or inspector designated by him for that purpose, to ex-
amine any books, papers, records or memoranda bearing upon
the matters required to be included in the return, and may

act of 1918 381

require the attendance of the person rendering the return or of
any officer or employee of such person, or the attendance of any
other person having knowledge in the premises, and make take
his testimony with reference to the matter required by law to be
included in such return, with power to administer oaths to such
person or persons.

Section 1309. That the Commissioner, with the approval of
the Secretary, is hereby authorized to make all needful rules and
regulations for the enforcement of the provisions of this Act.

Section 1313. That in the payment of any tax under this
Act not payable by stamp a fractional part of a cent shall be
disregarded unless it amounts to one-half cent or more, in which
case it shall be increased to 1 cent.

Section 1314. That collectors may receive, at par with an
adjustment for accrued interest, certificates of indebtedness
issued by the United States and uncertified checks in payment
of income, war-profits and excess-profits taxes and any other
taxes payable other than by stamp, during such time and under
such regulations as the Commissioner, with the approval of the
Secretary, shall prescribe; but if a check so received is not paid
by the bank on which it is drawn the person by whom such
check has been tendered shall remain liable for the payment of
the tax and for all legal penalties and additions the same as if
such check had not been tendered.

Section 1316. (a) That section 3220 of the Revised Statutes
is hereby amended to read as follows:

"Section 3220. The Commissioner of Internal Revenue,
subject to regulations prescribed by the Secretary of the Treas-
ury, is authorized to remit, refund, and pay back all taxes
erroneously or illegally assessed or collected, all penalties col-
lected without authority, and all taxes that appear to be unjustly
assessed or excessive in amount, or in any manner wrongfully
collected; also to repay to any collector or deputy collector the
full amount of such sums of money as may be recovered against
him in any court, for any internal revenue taxes collected by
him, with the cost and expenses of suit; also all damages and
costs recovered against any assessor, assistant assessor, collector,
deputy collector, agent, or inspector, in any suit brought against

382 act of 1918

him by reason of anything done in the due performance of his
official duty, and shall make report to Congress at the beginning
of each regular session of Congress of all transactions under
this section."

(b) Section 3225 of the Revised Statutes of the United States
is hereby amended to read as follows:

"Section 3225. When a second assessment is made in case of
any list, statement, or return, which in the opinion of the col-
lector or deputy collector was false or fraudulent, or contained
any understatement or undervaluation, such assessment shall
not be remitted, nor shall taxes collected under such assessment
be refunded, or paid back, or recovered by any suit, unless it
is proved that such list, statement, or return was not wilfully
false or fraudulent and did not contain any willful understate-
ment or undervaluation."

(c) That the paragraph of section 3689 of the Revised Stat-
utes, as amended, reading as follows:

"Refunding taxes illegally collected (internal revenue): To
refund and pay back duties erroneously or illegally assessed or
collected under the internal-revenue laws," is repealed from and
after June 30, 1920; and the Secretary of the Treasury shall
submit for the fiscal year 1921, and annually thereafter, an
estimate of appropriations to refund and pay back duties or
taxes erroneously or illegally assessed or collected under the
internal-revenue laws, and to pay judgments, including interest
and costs, rendered for taxes or penalties erroneously or illegally
assessed or collected under the internal-revenue laws.

Section 1317. That sections 3164, 3165, 3167, 3172, 3173,
and 3176 of the Revised Statutes as amended are hereby
amended to read as follows:

"Section 3164. It shall be the duty of every collector of
internal revenue having knowledge of any willful violation of
any law of the United States relating to the revenue, within
thirty days after coming into possession of such knowledge, to
file with the district attorney of the district in which any fine,
penalty, or forfeiture may be incurred, a statement of all the
facts and circumstances of the case within his knowledge, to-
gether with the names of the witnesses, setting forth the provi-

act op 1918 383

sions of law believed to be so violated on which reliance may be
had for condemnation or conviction.

"Section 3165. Every collector, deputy collector, internal-
revenue agent, and internal-revenue officer assigned to duty
under an internal-revenue agent, is authorized to administer
oaths and to take evidence touching any part of the adminis-
tration of the internal-revenue laws with which he is charged, or
where such oaths and evidence are authorized by law or regula-
tion authorized by law to be taken.

"Section 3167. It shall be unlawful for any collector, deputy
collector, agent, clerk, or other officer or employee of the United
States to divulge or to make known in any manner whatever not
provided by law to any person the operations, style of work, or
apparatus of any manufacturer or producer visited by him in the
discharge of his official duties, or the amount or source of income,
profits, losses, expenditures, or any particular thereof, set forth
or disclosed in any income return, or to permit any income return
or copy thereof or any book containing any abstract or particu-
lars thereof to be seen or examined by any person except as
provided by law; and it shall be unlawful for any person to print
or publish in any manner whatever not provided by law any
income return, or any part thereof or source of income, profits,
losses, or expenditures appearing in any income return; and any
offense against the foregoing provision shall be a misdemeanor
and be punished by a fine not exceeding $1,000 or by imprison-
ment not exceeding one year, or both, at the discretion of the
court; and if the offender be an officer or employee of the United
States he shall be dismissed from office or discharged from em-
ployment.

"Section 3172. Every collector shall, from time to time,
cause his deputies to proceed through every part of his district
and inquire after and concerning all persons therein who are
liable to pay any internal-revenue tax, and all persons owning or
having the care and management of any objects liable to pay
tax, and to make a list of such persons and enumerate said
objects.

"Section 3173. It shall be the duty of any person, partner-
ship, firm, association, or corporation, made liable to any duty,

384 act of 1918

special tax, or other tax imposed by law, when not otherwise
provided for, (1) in case of a special tax, on or before the thirty-
first day of July in each year, and (2) in other cases before the
day on which the taxes accrue, to make a list or return, verified
by oath, to the collector or a deputy collector of the district
where located, of the articles or objects, including the quantity
of goods, wares, and merchandise, made or sold and charged
with a tax, the several rates and aggregate amount, according
to the forms and regulations to be prescribed by the Commis-
sioner of Internal Revenue, with the approval of the Secretary
of the Treasury, for which such person, partnership, firm,
association, or corporation is liable: Provided, That if any per-
son liable to pay any duty or tax, or owning, possessing, or
having the care or management of property, goods, wares, and
merchandise, articles or objects liable to pay any duty, tax, or
license, shall fail to make and exhibit a list or return required
by law, but shall consent to disclose the particulars of any and
all the property, goods, wares, and merchandise, articles, and
objects liable to pay any duty or tax, or any business or occu-
pation liable to pay any tax as aforesaid, then, and in that case,
it shall be the duty of the collector or deputy collector to make
such list or return, which, being distinctly read, consented to,
and signed and verified by oath by the person so owning, pos-
sessing, or having the care and management as aforesaid, may
be received as the list of such person: Provided further, That
in case no annual list or return has been rendered by such person
to the collector or deputy collector as required by law, and the
person shall be absent from his or her residence or place of
business at the time the collector or a deputy collector shall
call for the annual list or return, it shall be the duty of such
collector or deputy collector to leave at such place of residence
or business, with some one of suitable age and discretion, if such
be present, otherwise to deposit in the nearest post office, a note
or memorandum addressed to such person, requiring him or
her to render to such collector or deputy collector the list or
return required by law within ten days from the date of such
note or memorandum, verified by oath. And if any person, on
being notified or required as aforesaid, shall refuse or neglect

act of 1918 385

to render such list or return within the time required as afore-
said, or whenever any person who is required to deliver a
monthly or other return of objects subject to tax fails to do so
at the time required, or delivers any return which, in the opinion
of the collector, is erroneous, false, or fraudulent, or contains
any undervaluation or understatement, or refuses to allow any
regularly authorized Government officer to examine the books
of such person, firm, or corporation, it shall be lawful for the
collector to summon such person, or any other person having
possession, custody, or care of books of account containing
entries relating to the business of such person or any other per-
son he may deem proper, to appear before him and produce such
books at a time and place named in the summons, and to give
testimony or answer interrogatories, under oath, respecting
any objects or income liable to tax or the returns thereof. The
collector may summon any person residing or found within the
State or Territory in which his district lies; and when the person
intended to be summoned does not reside and can not be found
within such State or Territory, he may enter any collection
district where such person may be found and there make the
examination herein authorized. And to this end he may there
exercise all the authority which he might lawfully exercise in
the district for which he was commissioned: Provided, That
'person,' as used in this section, shall be construed to include any
corporation, joint-stock company or association, or insurance
company when such construction is necessary to carry out its
provisions.

"Section 3176. If any person, corporation, company, or
association fails to make and file a return or list at the time
prescribed by law or by regulation made under authority of law,
or makes, wilfully or otherwise, a false or fraudulent return or
list, the collector or deputy collector shall make the return or
list from his own knowledge and from such information as he
can obtain through testimony or otherwise. In any such case
the Commissioner may, from his own knowledge and from such
information as he can obtain through testimony or otherwise,
make a return or amend any return made by a collector or
deputy collector. Any return or list so made and subscribed

386 act of 1918

by the Commissioner, or by a collector or deputy collector and
approved by the Commissioner, shall be prima facie good and
sufficient for all legal purposes.

"If the failure to file a return or list is due to sickness or
absence, the collector may allow such further time, not exceed-
ing thirty days, for making and filing the return or list as he
deems proper.

"The Commissioner of Internal Revenue shall determine
and assess all taxes, other than stamp taxes, as to which returns
or lists are so made under the provisions of this section. In case
of any failure to make and file a return or list within the time
prescribed by law, or prescribed by the Commissioner of Internal
Revenue or the collector in pursuance of law, the Commissioner
of Internal Revenue shall add to the tax 25 per centum of its
amount, except that when a return is filed after such time and
it is shown that the failure to file it was due to a reasonable cause
and not to willful neglect, no such addition shall be made to
the tax. In case a false or fraudulent return or list is willfully
made, the Commissioner of Internal Revenue shall add to the
tax 50 per centum of its amount.

"The amount so added to any tax shall be collected at the
same time and in the same manner and as part of the tax unless
the tax has been paid before the discovery of the neglect, falsity,
or fraud, in which case the amount so added shall be collected in
the same manner as the tax."

Section 1318. That if any person is summoned under this
Act to appear, to testify, or to produce books, papers or other
data, the district court of the United States for the district in
which such person resides shall have jurisdiction by appropriate
process to compel such attendance, testimony, or production
of books, papers or other data.

The district courts of the United States at the instance of the
United States are hereby invested with such jurisdiction to make
and issue, both in actions at law and suits in equity, writs and
orders of injunction, and of ne exeat republica, orders appointing
receivers, and such other orders and process, and to render such
judgments and decrees, granting in proper cases both legal
and equitable relief together, as may be necessary or appropriate

act of 1918 387

for the enforcement of the provisions of this Act. The remedies
hereby provided are in addition to and not exclusive of any and
all other remedies of the United States in such courts or other-
wise to enforce such provisions.

Section 1320. That wherever by the laws of the United
States or regulations made pursuant thereto, any person is
required to furnish any recognizance, stipulation, bond, guar-
antee, or undertaking, hereinafter called "penal bond," with
surety or sureties, such person may, in lieu of such surety or
sureties, deposit as security with the official having authority
to approve such penal bond, United States Liberty bonds or
other bonds of the United States in a sum equal at their par
value to the amount of such penal bond required to be furnished,
together with an agreement authorizing such official to collect
or sell such bonds so deposited in case of any default in the
performance of any of the conditions or stipulations of such
penal bond. The acceptance of such United States bonds in
lieu of surety or sureties required by law shall have the same
force and effect as individual or corporate sureties, or certified
checks, bank drafts, post-office money orders, or cash, for the
penalty or amount of such penal bond. The bonds deposited
hereunder, and such other United States bonds as may be sub-
stituted therefor from time to time as such security, may be
deposited with the Treasurer, or an Assistant Treasurer of the
United States, a Government depository, Federal Reserve
bank, or member bank, which shall issue receipt therefor,
describing such bonds so deposited. As soon as security for
the performance of such penal bond is no longer necessary, such
bonds so deposited, shall be returned to the depositor: Pro-
vided, That in case a person or persons supplying a contractor
with labor or material as provided by the Act of Congress,
approved February 24, 1905 (33 Stat., 811), entitled "An Act to
amend an Act approved August thirteenth, eighteen hundred
and ninety-four, entitled 'An Act for the protection of persons
furnishing materials and labor for the construction of public
works,'" shall file with the obligee, at any time after a default
in the performance of any contract subject to said Acts, the
application and affidavit therein provided, the obligee shall

388 act of 1918

not deliver to the obligor the deposited bonds nor any surplus
proceeds thereof until the expiration of the time limited by said
Acts for the institution of suit by such person or persons, and,
in case suit shall be instituted within such time, shall hold said
bonds or proceeds subject to the order of the court having juris-
diction thereof: Provided further, That nothing herein con-
tained shall affect or impair the priority of the claim of the
United States against the bonds deposited or any right or
remedy granted by said Acts or by this section to the United
States for default upon any obligation of said penal bond:
Provided further, That all laws inconsistent with this section
are hereby so modified as to conform to the provisions hereof:
And provided further, That nothing contained herein shall affect
the authority of courts over the security, where such bonds are
taken as security in judicial proceedings, or the authority of any
administrative officer of the United States to receive United
States bonds for security in cases authorized by existing laws.
The Secretary may prescribe rules and regulations necessary
and proper for carrying this section into effect.

TITLE XIV. — GENBBAL PROVISIONS

Section 1400. (a) That the following parts of Acts are
hereby repealed, subject to the limitations provided in sub-
division (b):

(1) The following titles of the Revenue Act of 1916:
Title I (called "Income Tax");

Title II (called "Estate Tax");

Title III (called "Munitions Manufacturers' Tax"), as
amended;
Title IV (called "Miscellaneous Taxes").

(2) The following parts of the Act entitled "An Act to pro-
vide increased revenue to defray the expenses of the increased
appropriations for the Army and Navy and the extensions of
fortifications, and for other purposes," approved March 3, 1917:

Title III (called "Estate Tax");

Section 402 (called "Returns of Dividends").

(3) The following titles of the Revenue Act of 1917:

act of 1918 389

Title I (called "War Income Tax"):

Title II (called "War Excess-Profits Tax");

Title III (called "War Tax on Beverages");

Title IV (called "War Tax on Cigars, Tobacco, and Manu-
factures Thereof");

Title V (called "War Tax on Facilities Furnished by Public
Utilities, and Insurance");

Title VI (called "War Excise Taxes");

Title VII (called "War Tax on Admissions and Dues");

Title VIII (called "War Stamp Taxes") ;

Title IX (called "War Estate Tax");

Title X (called "Administrative Provisions");

Title XII (called "Income-Tax Amendments").

(b) Such parts of Acts shall remain in force for the assessment
and collection of all taxes which have accrued thereunder, and
for the imposition and collection of all penalties or forfeitures
which have accrued and may accrue in relation to any such
taxes, and except that the unexpended balance of any appropria-
tion heretofore made and now available for the administration of
any such part of an Act shall be available for the administration
of this Act or the corresponding provision thereof: Provided,
That, except as otherwise provided in this Act, no taxes shall
be collected under Title I of the Revenue Act of 1916 as amended
by the Revenue Act of 1917, or Title I or II of the Revenue Act
of 1917, in respect to any period after December 31, 1917:
Provided further, That the assessment and collection of all
estate taxes, and the imposition and collection of all penalties or
forfeitures, which have accrued under Title II of the Revenue
Act of 1916 as amended by the Act entitled "An Act to provide
increased revenue to defray the expenses of the increased ap-
propriations for the Army and Navy and the extensions of forti-
fications, and for other purposes," approved March 3, 1917, or
Title IX of the Revenue Act of 1917, shall be according to the
provisions of Title IV of this Act. In the case of any tax imposed
by any part of an Act herein repealed, if there is a tax imposed
by this Act in lieu thereof, the provision imposing such tax shall
remain in force until the corresponding tax under this Act takes
effect under the provisions of this Act.

390 act of 1918

Title I of the Revenue Act of 1916 as amended by the Revenue
Act of 1917 shall remain in force for the assessment and collec-
tion of the income tax in Porto Rico and the Philippine Islands,
except as may be otherwise provided by their respective legis*
latures.

Section 1401. That section 1100 of the Revenue Act of 1917
is hereby repealed, to take effect on July 1, 1919, and thereafter
the rate of postage on all mail matter of the first class shall be
the same as the rate in force on October 2, 1917: Provided, That
letters written and mailed by soldiers, sailors, and marines
assigned to duty in a foreign country engaged in the present
war may be mailed free of postage, subject to such rules and
regulations as may be prescribed by the Postmaster General.

Section 1107 of such Act is hereby repealed, to take effect
July 11, 1919.

Section 1402. That if any clause, sentence, paragraph, or
part of this Act shall for any reason be adjudged by any court
of competent jurisdiction to be invalid, such judgment shall not
affect, impair, or invalidate the remainder of this Act, but
shall be confined in its operation to the clause, sentence, para-
graph, or part thereof directly involved in the controversy in
which such judgment has been rendered.

Section 1403. That the Revenue Act of 1916 is hereby
amended by adding at the end thereof a section to read as
follows:

"Section 903. That this Act may be cited as the 'Revenue
Act of 1916.'"

Section 1404. That the Revenue Act of 1917 is hereby
amended by adding at the end thereof a section to read as
follows:

"Section 1303. That this Act may be cited as the 'Revenue
Act of 1917.'"

Section 1405. That this Act may be cited as the "Revenue
Act of 1918."

Section 1408. That every person who on or after April 6,
1917, has entered into any contract, undertaking, or agreement
with the United States, or with any department, bureau, officer,
commission, board, or agency under the United States or acting

act of 1918 391

in its behalf, or with any other person having contract relations
with the United States, for the performance of any work or the
supplying of any materials or property for the use of or for the
account of the United States, shall, within thirty days after a
request of the Commissioner therefor, file with the Commis-
sioner a true and correct copy of every such contract, under-
taking, or agreement.

Whoever fails to comply with such request of the Commis-
sioner shall be guilty of a misdemeanor and shall be punished by
a fine of not more than $1,000, or by imprisonment for not more
than one year, or both.

The Commissioner shall (when not violative of the technical
military or naval secrets of the Government) have access to all
information and data relating to any such contract, undertak-
ing, or agreement, in the possession, control or custody of any
department, bureau, board, agency, officer or commission of the
United States and may call upon any such department, bureau,
board, agency, officer or commission for a full statement and
description of any allowance for amortization, obsolescence,
depreciation or loss, or of any valuation, appraisal, adjustment
or final settlement, made in pursuance of any such contract,
undertaking, or agreement.

Section 1409. That unless otherwise herein specially pro-
vided, this Act shall take effect on the day following its
passage.

ALPHABETICAL TABLE OF CASES

References are to Case Numbers

A

Abrast Realty Company, Straus v., 200 Fed. 327 369

Acorn Roofing Company, United States v., 204 Fed. 157 . 353
Aetna Life Insurance Company, United States v., 260 Fed.

333 148

Alderman v. Wells, 67 S. E. 781 223

Allen, Altheimer and Rawlins Inv. Company v., 246 Fed.

270 151

Allen, Altheimer and Rawlins Inv. Company v., 248 Fed.

688 152

Allen, National Bank of Commerce v., 211 Fed. 743 166

Allen, National Bank of Commerce v., 223 Fed. 472 167

Allouez Bay Dock Company, Superior p., 164 N. W. 362. 258
Alpha Portland Cement Company v. Knapp, 64 N. Y. L. J.

1043 96

Alpha Portland Cement Company, United States v., 242

Fed. 978 54

Alpha Portland Cement Company, United States v., 257

Fed. 432 55

Alpha Portland Cement Company v. United States, 261

Fed. 339 1

Altheimer and Rawlins Inv. Company v. Allen, 246 Fed.

270 151

Altheimer and Rawlins Inv. Company v. Allen, 248 Fed.

688 152

American Brush and Broom Company v. Knapp, 175 N. Y.

S. 337 208

American Manufacturing Company v. Koeln, 211S.W.31. 214
American Piano Company, Codman v., 118 N. E. 344. . . 313
American Printing Company v. Commonwealth, 120 N. E.

686 : 309

393

394 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Anderson, Brady v., 240 Fed. 665 192

Anderson, Forty-two Broadway v., 209 Fed. 991 157

Anderson v. Forty-two Broadway, 213 Fed. 777 153

Anderson v. Forty-two Broadway, 239 U. S. 69 154

Anderson, Jacobs and Davies v., 228 Fed. 505 139

Anderson, Jewelers Safety Fund Society v., T. D. 3078. . . 285

Anderson v. Morris and E. Railway Company, 216 Fed. 83. 2
Anderson, New York Life Insurance Gompany v., 257

Fed. 576 340

Anderson, New York Life Insurance Company v., 262

Fed. 215 293

Anderson, New York Life Insurance Company v., 263

Fed. 527 177

Anderson, New York Mail and Transportation Company

v., 234 Fed. 590 374

Anderson, Roberts v., 226 Fed. 7 396

Anderson, Thorne v., 240 U. S. 115 252

Anderson, Tyee Realty Company v., 240 U. S. 115 252

Arpin v. Eberhardt, 147 N. W. 1016 101

Associated Pipe Line Company v. United States, 258 Fed.

800 155

Atwood v. Johnson, 175 N. W. 589 224

B

Bailey v. Railroad, 89 U. S. 604 383

Bailey v. Railroad Company, 106 U. S. 109 190

Baldwin Locomotive Works v. McCoach, 215 Fed. 967 ... 74

Baldwin Locomotive Works v. McCoach, 221 Fed. 59 75

Baldwin Tool Works v. Blue, 240 Fed. 202 255

Baltic Mining Company, Stanton v., 240 U. S. 103 183

Baltimore v. Baltimore Railroad Company, 77 U. S. 543. 310

Barcalo Manufacturing Company v. Knapp, 124 N. E. 107. 207
Barcalo Manufacturing Company v. Knapp, 175 N. Y. S.

337 208

Barnes, Philadelphia and Reading Railway Company v.,

Fed. Cas. 11087 209

Barnes, Stewart v., 153 U. S. 456 352

ALPHABETICAL TABLE OF CASES 395

References are to Case Numbers

Barnes v. The Railroads, 84 U. S. 294 191

Bayfield Co. v. Pishon, 156 N. W. 463 88

Bekkedal, Village of Westby v., 178 N. W. 451 100

Benowitz, United States v., 262 Fed. 223 354

Biscoe v. Tax Commissioners, 128 N. E. 16 269

Biwabik Mining Company v. United States, 242 Fed. 9. . 179

Biwabik Mining Company, United States v., 247 U. S. 116. 186

Black v. Bolen, 268 Fed. 427 127

Blackman v. Tax Commissioners, 128 N. E. 16 269

Blair, Savings Institution v., 116 U. S. 200 348

Blalock v. Georgia Railway and Electric Company, 228

Fed. 296 384

Blalock v. Georgia Railway and Electric Company, 246

Fed. 387 3

Blue, Baldwin Tool Works v., 240 Fed. 202 255

Bolen, Black v., 268 Fed. 427 127

Bolens v. Frear, 134 N. W. 673 245

Boske v. Comingore, 177 U. S. 459 329

Boston and M. Railway Company v. United States, 265

Fed. 578 156

Boston and P. R. Corporation v. Gill, 257 Fed. 221 330

Boughton v. United States, 12 Ct. Cls. 330 331

Bowen v. Commonwealth, 101 S. E. 232 385

Bradley Contracting Company, Pennsylvania Cement

Company v., D. C. S. D. N. Y., July 7, 1920 342

Brady v. Anderson, 240 Fed. 665 192

Brady, Dodge v., 240 U. S. 122 364

Brainard, Hubbard v., 35 Conn. 563 388

Brenk v. Widule, 154 N. W. 696 44 A

Brewster v. Walsh, 268 Fed. 207 4

Brogan, Ehrlich v., 105 Atl. 511 321

Brogan, Van Beil v., 65 Pa. Sup. Ct. 384 327

Brushraber v. Union Pacific Railway Company, 240 U. S.

1 • 225

Bryce v. Keith, 257 Fed. 133 128

Bundy v. Nygaard, 158 N. W. 87 45

Butterick Company v. United States, 240 Fed. 539 193

396 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

c

Cadwalader v. Lederer, D. C. E. D. Penn. 1920 304

Campbell ». Shaw, 11 Haw. 112 226

Camp Bird, Limited, v. Howbert, 249 Fed. 27 370

Camp Bird v. Howbert, 262 Fed. 114 371

Carter, DeBary v., 102 Fed. 130 334

Carter, Shaffer v., 252 U. S. 37 241

Carter, Union Hollywood Water Company v., 238 Fed. 329 53
Cartier and Holland v. Doyle, T. D. 3080, D. C. W. D.

Mich. 1920, Act of 1917 305

Cary, San Francisco Savings & Loan Society v., Fed. Cas.

12317 397

Cary v. Savings Union, 89 U. S. 38 386

Castle, J. B., In re, 18 Haw. 129 198

Catawissa Railway Company v. Philadelphia and Reading

Railway Company, 255 Pa. 269 311

C. Brewer and Company, Ltd., In re, 23 Haw. 96 231

Central Trust Company v. Third Avenue Railway Com-
pany, 193 Fed. 286 * 117

Central Trust Company v. Third Avenue Railway Com-
pany, 198 Fed. 774 118

Chamberlain, Underwood Typewriter Company v., 108

Atl. 154 99

Cheatham v. United States, 92 U. S. 85 332

Chicago and Alton Railway Company v. United States,

53 Ct. Cls. 41 76

Chicago and Alton Railway Company, United States v.,

D. C. N. D. Ills., Jan. 5, 1920 398

Chicago and Great Western, Des Moines Union Railway

Company v., 177 N. W. 90 314

Christine Oil and Gas Company, United States v., D. C.

W. D. La., Sept.. 8, 1920 56

Cleveland, C, C. & St. L. R. Co., United States v., D. C,

S. D. Ohio, Feb. 23, 1916 87 A

Cleveland, C, C. & St. L. Railway Company v. United
States, 242 Fed. 18 5

ALPHABETICAL TABLE OF CASES 397
References are to Case Numbers

Cleveland, etc., Railway Company, United States v., 247

U. S. 195 57

Clopton v. Pennsylvania and Reading Railway Company,

54 Penn. 356 312

Codman v. American Piano Company, 118 N. E. 344. . . . 313

Cohen v. Lowe, 234 Fed. 474 174

Collector v. Day, 78 U. S. 113 259

Collector v. Hubbard, 79 U. S. 1 6

Columbia Construction Company v. Tax Commission, 165

N. W. 382 120

Collector, Railroad Company v., 100 U. S. 595 211

Comingore, Boske v., 177 U. S. 459 329

Commercial Trav. Life & A. Ass'n v. Rodway, 235 Fed.

370 102

Commission, State ex rel., Sallie F. Moon Company v., 163

N. W. 639 46

Commissioners, Dobbins v., 14 U. S. 435 270

Commonwealth, American Printing Company v., 120 N. E.

686 309

Commonwealth, Bowen v., 101 S. E. 232 385

Commonwealth, F. S. Royster Guano Company v., 253

U. S. 412 230

Commonwealth, H. P. Hood & Sons v., 127 N. E. 497. . . 91

Commonwealth v. Ocean Oil Company, 59 Penn. 61 7

Commonwealth v. Pennsylvania Gas and Coal Company,

62 Penn. 241 8

Commonwealth, Plumer v., 3 Grattan (Va.), 645 210

Commonwealth v. Werth, 82 S. E. 695 227

Conant v. Kinney, 162 Fed. 581 333

Connecticut General Insurance Company v, Eaton, 218

Fed. 188 278

Connecticut General Life Insurance Company, Eaton v.,

223 Fed. 1022 280

Connecticut Mutual Life Insurance Company v. Eaton,

218 Fed. 206 279

Connecticut Mutual Life Insurance Company, Eaton v.,

223 Fed. 1022 280

398 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Cotting, Kimball v., 118 N. E. 866 317

Cotting, Kimball v., 125 N. E. 551 318

Coulby, United States v., 251 Fed. 982 302

Coulby, United States v., 258 Fed. 27 303

Craig, National Life and Accident Insurance Company

v., 251 Fed. 524 292

Crocker v. Malley, 249 U. S. 223 299

Crocker v. Malley, 250 Fed. 817 298

Cryan v. Wardell, 263 Fed. 248 77

D

Darlington, Gray v., 82 U. S. 63 14

Davis, State Line and S. R. Company v., 228 Fed. 246. . . 373

Day, Collector v., 78 U. S. 113 259

DeBary v. Carter, 102 Fed. 130 334

DeGanay v. Lederer, 239 Fed. 568 89

DeGanay v. Lederer, 250 U. S. 376 90

Delasky and Thropp Circular Woven Tire Company v.

Iredell, 268 Fed. 377 •. 306

Delaware and Hudson Company, Rensselaer and Saratoga

Railway Company v., 168 App. Div. N. Y. 699 324

Delaware and Hudson Company, Rensselaer and Saratoga

Railway Company v., 257 Fed. 555 345

Dennison, Van Rensselaer v., 8 Barb. (N. Y.) 23 328

Denton, Magee v., Fed. Cas. 8943 86

Des Moines Union Railway Company v. Chicago and

Great Western, 177 N. W. 90 314

Dirckx, Smith v., 223 S. W. 104 243

Dobbins v. Commissioners, 14 U. S. 435 270

Dodge v. Brady, 240 U. S. 122 364

Dodge v. Osborn, 240 U. S. 118 365

Dollar Savings Bank v. United States, 86 U. S. 227 334 A

Doyle, Cartier and Holland v., T. D. 3080 305

Doyle, Grand Rapids and I. Railway v., 245 Fed.

792 129

Doyle, Mitchell Bros, v., 225 Fed. 437 87

Doyle v. Mitchell Bros., 235 Fed. 686 78

ALPHABETICAL TABLE OF CASES 399

References are to Case Numbers

Doyle v. Mitchell Bros. Co., 247 U. S. 179 79

Dunn v. Trefry, 260 Fed. 147 387

E

Eaton, Connecticut General Insurance Company v., 218

Fed. 188 278

Eaton v. Connecticut General Life Insurance Company,

223 Fed. 1022 280

Eaton, Connecticut Mutual Life Insurance Company v.,

218 Fed. 206 279

Eaton v. Connecticut Mutual Life Insurance Company,

223 Fed. 1022 280

Eaton, Middlesex Banking Company v., 221 Fed. 86 158

Eaton, Middlesex Banking Company v., 233 Fed. 87 ... . 159

Eberhardt, Arpin v., 147 N. W. 1016 101

Edwards v. Keith, 224 Fed. 585 9

Edwards v. Keith, 231 Fed. 110 10

Ehrlich v. Brogan, 105 Atl. 511 321

Eisner, Laemmle v., D. C. S. D. N. Y. 1920 140

Eisner v. Macomber, 252 U. S. 189 11

Eisner, Mente v., 266 Fed. 161 141

Eisner, Peabody v., 247 U. S. 347 35

Eisner, Prentiss v., 260 Fed. 589 144

Eisner, Prentiss v., 267 Fed. 16 145

Eisner, Towne v., 242 Fed. 702 50

Eisner, Towne v., 245 U. S. 418 51

Eliot v. Freeman, 220 U. S. 178 300

Eliot National Bank v. Gill, 210 Fed. 933 163

Eliot National Bank v. Gill, 218 Fed. 600 164

Elliott, Schuylkill Nav. Company v., Fed. Cas. 12497 ... 213
Emery, Bird, Thayer Realty Company v. United States,

198 Fed. 242. 334 B

Equitable Life Assur. Society v. Hart, 173 Pac. 1062 228

Equitable Trust Company v. Western Pacific Railway

Company, 236 Fed. 813 103

Erie Railway Company, United States v., 106 tf. S. 327. . 216

Erie Railway Company, United States v., Fed. Cas. 15056 . 253

400 ALPHABETICAL TABLES OF CASES

References are to Case Numbers

Evans v. Gore, 262 Fed. 550 260

Evans v. Gore, 253 U. S. 245 261

Ewa Plantation Company, In re, 18 Haw. 530 175

Ex parte Ives, Fed. Cas. 7114 21

F

Farmers Loan and Trust Company, Pollock v., 157 U. S.

429 237

Farmers Loan and Trust Company, Pollock v., 158 U. S.

601 238

Fassman and Yancey, New Orleans v., 14 La. Ann. 865.. 390

Faulkner v. Trefry, 118 N. E. 229 194

Federal Publishing Company v. United States, 240 Fed.

539 193

Fidelity Trust Company v. McCoach, 215 Fed. 991 168

Fink, Northwestern Mutual Life Insurance Company v.,

248 Fed. 568 294

Fink v. Northwestern Mutual Life Insurance Company,

267 Fed. 968 281

First American Savings and Trust Company, et al., In re,

15 Haw. 502 171

First National Bank of Greencastle v. United States, 15

Ct. Cls. 225 335

First National Bank of Jackson v. McNeel, 238 Fed. 559 . 165
First Trust and Savings Bank v. Smietanka (C. C. A.,

7th Circ), Oct., 1920 104

Flint v. Stone Tracy Company, 220 U. S. 107 229

Forty Fort Coal Company v. Kirkendall, 233 Fed. 704 .. . 180

Forty-two Broadway v. Anderson, 209 Fed. 991 157

Forty-two Broadway, Anderson v., 213 Fed. 777 153

Forty-two Broadway, Anderson v., 239 U. S. 69 154

Frear, State ex rel. Bolens v., 134 N. W. 673 245

Freedman v. Sigel, Fed. Cas. 5080 262

Freeman, Eliot v., 220 U. S. 178 300

Frost, United States v., Fed. Cas. 15172 58

F. S. Royster Guano Company v. Commonwealth, 253 U.

S. 412 230

ALPHABETICAL TABLE OF CASES 401
References are to Case Numbers

G

Galm v. United States, 39 Ct. Cls. 55 12

Gauley Mountain Coal Company v. Hayes, 230 Fed. 110. 80

Gauley Mountain Coal Company, Hayes v., 247 U. S. 189. 81

Gearin, Miller v., 258 Fed. 225 25

General Insp. and Loading Company, United States v.,

192 Fed. 223 123

General Insp. and Loading Company, United States v.,

204 Fed. 657 355

Georgia Railway and Electric Company, Blalock v., 228

Fed. 296 384

Georgia Railway and Electric Company, Blalock v., 246

Fed. 387 3

Gill, Boston and P. R. Corporation v., 257 Fed. 221 330

Gill, Eliot National Bank v., 210 Fed. 933 . . ., 163

Gill, Eliot National Bank v., 218 Fed. 600 164

Glasgow v. Rowse, 43 Mo. 479 195

Glen, Lining v., 1 McChord (S. C), 345 201

Goldfield Consolidated Mines Company v. Scott, 247 U. S.

126 181

Goldman v. Trefry, 120 N. E. 74 196

Gore, Evans v., 262 Fed. 550 260

Gore, Evans v., 253 U. S. 245 261

Gouge v. Hart, 250 Fed. 802 366

Gould v. Gould, 245 U. S. 151 13

Grand Rapids and I. Railway Company, United States

v., 239 Fed. 153 217

Grand Rapids and I. Railway Company v. Doyle, 245 Fed.

792 129

Grant v. Hartford and New Haven Railway Company, 93

U. S. 225 130

Grant, Hartford and New Haven Railway Company v.,

Fed. Cas. 6159 132

Gray v. Darlington, 82 U. S. 63 14

Greenport Basin and Construction Company v. United

States, 269 Fed. 58 197

402 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Guaranty Trust and Savings Bank, United States v.,

253 Fed. 291 169

Guggenheim Exploration Company, United States v.,

238 Fed. 231 59

Guinzburg, United States v., D. C. S. D. N. Y. Oct. 22,

1920 60

Gulf and Interstate Railway Company v. Walker, D. C.

W. D. Texas, May 13, 1920 131

Gulf Oil Corporation v. Lewellyn, 242 Fed. 709 15

Gulf Oil Corporation, Lewellyn v., 245 Fed. 1 22

Gulf Oil Corporation v. Lewellyn, 248 U. S. 71 16

H

Haight v. Pittsburg, Ft. W. & C. By. Co., Fed. Cas. 5903 . 315

Haight v. Railroad Company, 73 U. S. 15 316

Haiku Sugar Company v. Johnstone, 249 Fed. 103 301

Halstead v. Pratt, 14 Haw. 38 17

Hamlin, Lathers t>. 170 N. Y. S. 98 107

Hampel, State ex rel, Mariner v., 178 N. W. 244 98

Hart, Equitable Life Assurance Society v., 173 Pac. 1062. 228

Hart, Gouge v., 250 Fed. 802 366

Hart, New Orleans v., 14 La. Ann. 803 26

Hartford and New Haven Railway Company v. Grant,

Fed. Cas. 6159 132

Hartford and New Haven Railway Company, Grant v.,

93 U. S. 225 130

Hartridge, Savannah v., 8 Ga. 23 240

Hartson, Klock Produce Company v., 212 Fed. 758 337

Hartson, Pacific Building and Loan Association v., 201

Fed. 1011 114

Hawaiian Commercial and Sugar Company, In re, 14

Haw. 687 133

Hawaiian Commercial and Sugar Company v. Tax As-
sessor, 14 Haw. 601 170

Hawaiian Trust Company, Trustee, Wilder v., 20 Haw. 589 126

Hays v. Gauley Mountain Coal Company, 247 U. S. 189 81

Hays, Gauley Mountain Coal Company v., 230 Fed. 110. 80

ALPHABETICAL TABLE OF CASES 403

References are to Case Numbers

Hays, In re, 16 Haw. 796 19

Hazard's Estate, In re, 177 N. Y. S. 369 134

Heller, Hirsch and Company, In re, 258 Fed. 208 106

Herold, Mutual Benefit Life Insurance Company v., 198

Fed. 199 291

Herold v. Mutual Benefit Life Insurance Company, 201

Fed. 918 282

Herold, Parkview Building and Loan Association v., 203

Fed. 876 115

Herold v. Parkview Building and Loan Association, 210

Fed. 577 105

Herold, Prudential Insurance Company v., 247 Fed. 681. 297

Herold, Public Service Railway Company v., 229 Fed. 902. 375

H. Hackfield and Company, Limited, In re, 16 Haw. 559. 172

Hickox v. Widule, 163 N. W. 648 45 A

Home Mutual Insurance Company v. Stockdale, Fed. Cas.

6662 197 A

Honolulu Iron Works v. Shaw, 11 Haw. 112 226

Hornby, Lynch v., 236 Fed. 661 83

Hornby, Lynch v., 247 U. S. 339 24

Houston Belt and Terminal Railway Company v. United

States, 250 Fed. 1 18

Howard, Shaffer v., 250 Fed. 873 242

Howbert, Camp Bird, Limited, v., 249 Fed. 27 370

Howbert, Camp Bird v., 262 Fed. 114 371

Howbert, Stratton's Independence v., 207 Fed. 419 185

Howbert, Stratton's Independence v., 231 U. S. 399 49

H. P. Hood and Sons v. Commonwealth, 127 N. E. 497. . 91

Hubbard v. Brainard, 35 Conn. 563 388

Hubbard, Collector v., 79 U. S. 1 6

Hubbard, Lott v., 44 Ala. 593 232

I

In re C. Brewer and Company, Ltd., 23 Haw. 96 231

In re Ewa Plantation Company, 18 Haw. 530 175

In re First American Savings and Trust Company, et al.,

15 Haw. 502 171

404 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

In re Hawaiian Commercial and Sugar Company, 14 Haw.

687 133

In re Hays, 16 Haw. 796 19

In re Hazard's Estate, 177 N. Y. S. 369 134

In re Heller, Hirsch and Company, 258 Fed. 208 106

In re H. Hackfield and Company, Limited, 16 Haw. 559. 172

In re Income Tax Appeal Cases, 18 Haw. 596 135

In re Jacobson, T. D. 3000 336

In re J. B. Castle, 18 Haw. 129 198

In re Laupahoehoe Sugar Company, et al., 18 Haw. 206. . 136

In re Pacific Guano and F. Company, 16 Haw. 552 173

In re Smith, 16 Haw. 796 137

In re Taxation of Salaries of Judges, 42 S. E. 970 263

In re Wilder S. S. Company, 16 Haw. 567 138

Income Tax Appeal Cases, In re, 18 Haw. 596 135

Industrial Transit Company v. Walsh, 222 Fed. 437 20

Insurance Company of North America v. McCoach, 218

Fed. 905 283

Insurance Company of North America v. McCoach, 224

Fed. 657 284

Insurance Company of North America, McCoach v., 244

U. S. 585 290

Insurance Companies, Stockdale v., 87 U. S. 323 215

Iredell, Delasky and Thropp Circular Woven Tire Com-
pany v., 268 Fed. 377 306

Irwin, Rensselaer and Saratoga Railway Company v., 239

Fed. 739 37

Irwin, Rensselaer and Saratoga Railway Company v., 249

Fed. 726 38

Irwin, Rensselaer and Saratoga Railway Company v., 252

Fed. 921 39

Isham, United States v., 84 U. S. 496 399

Ives, ex parte, Fed. Cas. 7114'. 21

J

Jackson v. Northern Central Railway, Fed. Cas. 7142. . . 199

Jackson, Railroad Company v., 74 U. S. 268 212

ALPHABETICAL TABLE OF CASES 405

References are to Case Numbers

Jackson v. Smietanka, 267 Fed. 932 82

Jacobs and Davies v. Anderson, 228 Fed. 505 139

Jacobson, In re, T. D. 3000 336

J. B. Castle, In re, 18 Haw. 129 198

Jewelers Safety Fund Society v. Lowe, T. D. 3078 285

John J. McHattan, et al., United States v., T. D. 3043. . . 400

Johnson, Atwood v., 175 N. W. 589 224

Johnston, United States v., 124 U. S. 236 218'

Johnstone, Haiku Sugar Company v., 249 Fed. 103 301

Joline and Robertson, United States v., 231 U. S. 144.. . . 124

Jones, Morrill v., 106 U. S. 466 389

Jordan Marsh Company, Suter v., 113 N. E. 580. ..... . 325

K

Karr Piquett Mining Company v. Platteville, 157 N. W.

763 182

Keith, Bryce v., 257 Fed. 133 128

Keith, Edwards v., 224 Fed. 585 9

Keith, Edwards v., 231 Fed. 110 10

Kempsmith v. Widule, 154 N. W. 695 45 C

Ketchum, Shaefer v., Fed. Cas. 12693 349

Kimball v. Cotting, 118 N. E. 866 317

Kimball v. Cotting, 125 N. E. 551 318

Kinney, Conant v., 162 Fed. 581 333

Kirkendall, Forty Fort Coal Company v., 233 Fed. 704. . 180

Kirkendall, Markle v., 267 Fed. 498 368

Klock Produce Company v. Hartson, 212 Fed. 758 337

Knapp, People ex rel. American Brush and Broom Com-
pany v., 175 N. Y. S. 337 208

Knapp, People ex rel. Barcalo Manufacturing Company

v., 124 N. E. 107 207

Knapp, People ex rel. Barcalo Manufacturing Company

v., 175 N. Y. S. 337 208

Knapp, People of New York ex rel. Alpha Portland Cement

Company v., 64 N. Y. L. J. 1043 96

Koeln, State ex rel. American Manufacturing Company

v., 211 S. W. 31 214

406 ALPHABETICAL TABLE OP CASES

References are to Case Numbers

Koeln, State ex rel. Meyer Bros. Drug Company v., 222

S. W. 389 246

Kohlhammer v. Smietanka, 239 Fed. 408 367

L

LaBelle Iron Works v. United States, Ct. Cls., June 28,

1920, No. 34603 307

Laemmle v. Eisner, D. C. S. D. N. Y. 1920 140

Lathers v. Hamlin, 170 N. Y. S. 98 107

Laupahoehoe Sugar Company, et al., In re, 18 Haw. 206. 136

Lawrence v. Wardell, T. D. 3102 (D. C. N. D. Cal.) 1920 200

Lea, New Orleans v., 14 La. Ann. 197 265

Lederer, Cadwalader v., D. C. E. D. Perm. 1920 304

Lederer, DeGanay v., 239 Fed. 568 89

Lederer, DeGanay v., 250 U. S. 376 90

Lederer, Perm Mutual Life Insurance Company v., 247

Fed. 559 295

Lederer v. Penn Mutual Life Insurance Company, 252

U. S. 523 296

Lederer v. Penn Mutual Life Insurance Company, 258

Fed. 81 286

Lederer, Philadelphia, H. & P. Ry. Co. v., 239 Fed

184 343

Lederer, Philadelphia, H. & P. Ry. Co. v., 242 Fed. 492.. 344

Lederer, Porter v., 267 Fed. 739 308

Lederer, Stockton v., 262 Fed. 173 122

Lederer v. Stockton, 266 Fed. 676 108

Lederer, Traylor Engineering and Manufacturing Com-
pany v., 266 Fed. 583 147

Letter from Justice Taney, 157 U. S. 701 264

Lewellyn, Gulf Oil Corporation v., 242 Fed. 709 15

Lewellyn v. Gulf Oil Corporation, 245 Fed. 1 22

Lewellyn, Gulf Oil Corporation v., 248 U. S. 71 16

Lewellyn, Woods v., 252 Fed. 106 73

Lining v. Glen, 1 McChord (S. C), 345 201

Little Miami, etc., Railway Company, United States v.,

1 Fed. 700 356

ALPHABETICAL TABLE OP CASES 407
References are to Case Numbers

Little Miami Railway Company v. United States, 108 U.

S. 277 176

Little Schuylkill Nav. R. & C. Co. v. Philadelphia and

Reading Railway Company, 69 Pa. Sup. Ct. 122 319

Loomis v. Wattles, 266 Fed. 876 338

Long, United States v., D. C. Mont., January 16, 1920. . 61

Lott v. Hubbard, 44 Ala. 593 232

Lowe, Cohen v., 234 Fed. 474 174

Lowe, Jewelers Safety Fund Society v., T. D. 3078 285

Lowe, Northern Railway Company v., 250 Fed. 856 28

Lowe, Peck v., 234 Fed. 125 256

Lowe, Peck v., 247 U. S. 165 257

Lowe, Roberts v., 236 Fed. 604 347

Lowe, Southern Pacific Company v., 238 Fed. 847 43

Lowe, Southern Pacific Railway Company v., 247 U. S. 330 44

Ludlow Saylor Wire Company v. Wollbrink, 205 S. W. 196. 233
Lumber Mutual Fire Insurance Company v. Malley, 256

Fed. 383 23

Lumber Mutual Fire Insurance Company v. Malley, 256

Fed. 380 287

Lynch v. Hornby, 236 Fed. 661 83

Lynch v. Hornby, 247 U. S. 339 24

Lynch, Northern Pacific Railway Company v., T. D. 3048. 27

Lynch v. Turrish, 236 Fed. 653 84

Lynch v. Turrish, 247 U. S. 221 85

M

Macomber, Eisner v., 252 U. S. 189 11

Magee v. Denton, Fed. Cas. 8943 86

Maguire v. Tax Commission, 120 N. E. 162 202

Maguire v. Trefry, 253 U. S. 12 92

Malley Crocker, v. 249 U. S. 223 299

Malley, Crocker v., 250 Fed. 817 298

Malley, Lumber Mutual Fire Insurance Company v., 256

Fed. 383 23

Malley, Lumber Mutual Fire Insurance Company v., 256

Fed. 380 287

408 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Malley, West End Street Railway Company v., 246 Fed.

625 71

Mandell v. Pierce, Fed. Cas. 9008 203

Manitowac Gas Company v. Tax Commission, 152 N. W.

848 97

Mariner v. Hampel, 178 N. W. 244 98

Marion Hotel Company, Urquhart v., 194 S. W. 1 326

Markle v. Kirkendall, 267 Fed. 498 368

Maryland Casualty Company v. United States, 52 Ct.

Cls. 201 288

Maryland Casualty Company ». United States, 251 U. S.

342 289

Mayer, United States v., Fed. Cas. 15753 149

McCartney, Merchants Insurance Company v., Fed. Cas.

9443 203 A

McCoach, Baldwin Locomotive Works v., 215 Fed. 967. . 74

McCoach, Baldwin Locomotive Works v., 221 Fed. 59. . . 75

McCoach, Fidelity Trust Company v., 215 Fed. 991 168

McCoach, Insurance Company of North America v., 218

Fed. 905 283

McCoach, Insurance Company of North America v., 224

Fed. 657 284

McCoach v. Insurance Company of North America, 244

U. S. 585 290

McCoach, Northern Trust Company v., 215 Fed. 991. ... 168

McCoach, Pennsylvania, etc., Company v., 215 Fed. 991. 168

McCoach, Philadelphia Trust Company v., 215 Fed. 991 . 168

McHatton, John J., el al., United States v., T. D. 3043. . 400

McNeel, First National Bank of Jackson v., 238 Fed. 559 . 165

Melcher v. City of Boston, 50 Mass. 73 271

Mente v. Eisner, 266 Fed. 161 141

Merchants Insurance Company v. McCartney, Fed. Cas.

9443 203 A

Michigan Central R. Company v. Slack, Fed. Cas. 9527. 339
Michigan Central Railway Company v. Slack, Fed. Cas.

9527 A 204

Middlesex Banking Company v. Eaton, 221 Fed. 86 158

ALPHABETICAL TABLE OP CASES 409

References are to Case Numbers

Middlesex Banking Company v. Eaton, 223 Fed. 87 159

Middlesex Commissioners, Wilcox v., 103 Mass. 544 125

Military Construction Company, United States v., 204

Fed. 153 357

Miller v. Gearin, 258 Fed. 225 25

Milwaukee, Pfister Land Company v., 165 N. W. 23 184

Milwaukee, Van Dyke v., 146 N. W. 812 69

Minneapolis Threshing Machine Company, United States

v., 229 Fed. 1019 358

Mitchell Brothers v. Doyle, 225 Fed. 437 87

Mitchell Brothers, Doyle v., 235 Fed. 686 78

Mitchell Brothers Co., Doyle v., 247 U. S. 179 79

Mohawk Mining Company, Weiss v., 264 Fed. 502 189

Moon v. Nygaard, 175 N. W. 810 121

Moore, Stoffregan v., 264 Fed. 232 47

Moore, United States v., 95 U. S. 760 219

Morrill v. Jones, 106 U. S. 466 389

Morris and Electric Railway Company, Anderson v., 216

Fed. 83 2

Muenter, Southern Pacific Railway Company v., 260 Fed.

837 146

Mutual Benefit Life Insurance Company v. Herold, 198

Fed. 199 291

Mutual Benefit Life Insurance Company, Herold v., 201

Fed. 918 282

N

Nashville, C. & St. L. Ry., United States v., 249 Fed.

678 220

Nashville, C. & St. L. Ry. v. United States, T. D. 3125 176 A

National Bank of Commerce v. Allen, 211 Fed. 743 166

National Bank of Commerce v. Allen, 223 Fed. 472 167

National Life and Accident Insurance Company v. Craig,

251 Fed. 524 292

New Orleans v. Fassman and Yancey, 14 La. Ann. 865 . . 390

New Orleans v. Hart, 14 La. Ann. 803 26

New Orleans v. Lea, 14 La. Ann. 197 265

410 ALPHABETICAL TABLE OP CASES

References are to Case Numbers

New York City Railway Co., Pennsylvania Steel Co. v.,

176 Fed. 471 116

New York City Railway Co., Pennsylvania Steel Co. v.,

193 Fed. 286 117

New York City Railway Co., Pennsylvania Steel Co. v.,

198 Fed. 774 118

New York and Hartford Railway Co., United States v.,

265 Fed. 331 162

New York Life Insurance Company v. Anderson, 257 Fed.

576 340

New York Life Insurance Company v. Anderson, 262 Fed.

215 293

New York Life Insurance Company v. Anderson, 263 Fed.

527 177

New York Mail and Transportation Co. v. Anderson, 234

Fed. 590 374

Nipissing Mines Company, United States v., 202 Fed.

803 187

Northern Central Railway, Jackson v., Fed. Cas. 7142. . . 199
Northern Pacific Railway Company v. Lynch, T. D. 3048. 27
N. Pennsylvania Railway Company v. P. & R. Ry. Com-
pany, 95 Atl. 100 320

Northern Railway Company v. Lowe, 250 Fed. 856 28

Northern Trust Company v. McCoach, 215 Fed. 991. .. . 168
Northwestern Mutual Life Insurance Company, Fink v.,

267 Fed. 968 281

Northwestern Mutual Life Insurance Company v. Fink,

248 Fed. 568 294

Nygaard, State ex rel. Moon v., 175 N. W. 810 121

Nygaard, State ex rel. Bundy v. Nygaard, 158 N. W. 87 . 45
Nygaard, State ex rel. Wickham v., 150 N. W. 513 248

O

Oahu R. & L. Co. v. Pratt, 14 Haw. 126 109

Oak Creek, United States Glue Company v., 153 N. W.

241 67

Oak Creek, United States Glue Company v., 247 U. S. 321. 254

ALPHABETICAL TABLE OF CASES 411

References are to Case Numbers

Ocean Oil Company, Commonwealth v., 59 Penn. 61 ... . 7

Opinion Attorney General, 12 Op. 402 205

Opinion Attorney General, 13 Op. 67 272

Opinion Attorney General, 13 Op. 161 266

Opinion Attorney General, 13 Op. 439 273

Opinion Attorney General, 14 Op. 615 377

Opinion Attorney General, 16 Op. 248 376

Opinion Attorney General, 21 Op. 112 29

Opinion Attorney General, 23 Op. 507 379

Opinion Attorney General, 28 Op. 138 110

Opinion Attorney General, 28 Op. 198 160

Opinion Attorney General, 28 Op. 211 93

Opinion Attorney General, 28 Op. 241 392

Opinion Attorney General, 29 Op. 217 341

Opinion Attorney General, 30 Op. 230 & 273 94

Opinion Attorney General, 30 Op. 252 274

Opinion Attorney General, 31 Op. 125 Ill

Opinion Attorney General, 31 Op. 148 206

Opinion Attorney General, 31 Op. 176 112

Opinion Attorney General, 31 Op. 213 30

Opinion Attorney General, 31 Op. 301 31

Opinion Attorney General, 31 Op. 304 32

Opinion Attorney General, 31 Op. 403 113

Opinion Attorney General, 31 Op. 441 275

Opinion Attorney General, 31 Op. 459 380

Opinion Attorney General, 31 Op. 475 267

Opinion Attorney General, 31 Op. 617 142

Opinion Attorney General, Op. Ag. 1, Income Tax Rulings. 143

Opinion Attorney General, Op. Ag. 2, Income Tax Rulings 393

Opinion Attorney General, T. D. 3044 391

Opinion Attorney General, T. D. 3049 266 A

Opinion Attorney General, T. D. 3071 33

Opinion Attorney General, T. D. 3089 182 A

Opinion Attorney General, T. D. 3111 95

Opinion of the Justices, 53 N. H. 635 234

Opinion of the Justices, 108 N. E. 570 235

O. R. & N. Company, United States v., 251 Fed. 211 62

412 ALPHABETICAL TABLE OP CASES

References are to Case Numbers

Osborn, Dodge v., 240 U. S. 118 365

Osgood v. Tax Commissioner, 126 N. E. 371 34

P

Pacific Building and Loan Association v. Hartson, 201

Fed. 1011 114

Pacific Guano & F. Co., In re, 16 Haw. 552 173

Pacific Insurance Company v. Soule, 74 U. S. 433. 394

Page, Purnell v., 45 S. E. 534 268

Parkview Building and Loan Association v. Herold, 203

Fed. 876 115

Parkview Building and Loan Association, Herold v., 210

Fed. 577 105

Peabody v. Eisner, 247 U. S. 347 35

Peacock v. Pratt, 121 Fed. 772 236

Peck v. Lowe, 234 Fed. 125 256

Peck v. Lowe, 247 U. S. 165 257

Penn Mutual Life Insurance Company v. Lederer, 247

Fed. 559 295

Penn Mutual Life Insurance Company, Lederer v., 258

Fed. 81 286

Penn Mutual Life Insurance Company, Lederer v., 252

U. S. 523 296

Pennsylvania, etc., Company v. McCoach, 215 Fed.

991 168

Pennsylvania Cement Company v. Bradley Contracting

Company, D. C. S. D. N. Y. July 7, 1920 342

Pennsylvania Gas and Coal Company, Commonwealth v.,

62 Penn. 241 8

Pennsylvania Steel Company v. New York City Ry. Co.,

176 Fed. 471 116

Pennsylvania Steel Company v. New York City Ry. Co.,

193 Fed. 286 117

Pennsylvania Steel Company v. New York City Ry. Co.,

198 Fed. 774 118

People of New York ex rel. Alpha Portland Cement Com-
pany v, Knapp, 64 N, Y. L. J. 1043 96

ALPHABETICAL TABLE OF CASES 413

References are to Case Numbers

People ex rel. American Brush and Broom Company v.

Knapp, 175 N. Y. S. 337 208

People ex rel. Barcalo Manufacturing Company v. Knapp,

175 N. Y. S. 337 208

Pfister Land Company v. Milwaukee, 165 N. W. 23 184

Pfister v. Widule, 163 N. W. 641 36

Phelps, State ex rel. Wisconsin Trust Company v., 178 N.

W. 471 350

Philadelphia, Baltimore & W. Ry. Co., United States v.,

262 Fed. 188 63

Philadelphia City Passenger Ry. Co. v. Phil. Rapid Transit

Co., 107 Atl. 329 322

Philadelphia & G. N. Ry. Co. v. Philadelphia & R. Ry. Co.,

108 Atl. 528 323

Philadelphia, H. & P. Ry. Co. v. Lederer, 239 Fed. 184. . 343
Philadelphia, H. & P. Ry. Co. v. Lederer, 242 Fed. 492. . 344
Philadelphia Knitting Mills Co., United States v., D. C.

E. D. Pa. 1920 150

Philadelphia Rapid Transit Co., Phil. City Passenger Ry.

Co. v., 107 Atl. 329 322

Philadelphia and Reading Railway Co. v. Barnes, Fed. Cas.

11087 209

Philadelphia and Reading Railway Co., Catawissa Rail-
way Company v., 255 Pa. 269 311

Philadelphia and Reading Railway Co., Clopton v., 54

Penn. 356 312

Philadelphia and Reading Railway Co., Little Schuylkill

Nav. R. & C. Co. v., 69 Pa. Sup. Ct. 122 319

Philadelphia and Reading Railway Co., N. Pennsylvania

Railway Co. v., 95 Atl. 100 320

Philadelphia & R. Ry. Co., Phil. & G. N. Ry. Co. v., 108

Atl. 528 323

Philadelphia Trust Company v. McCoach, 215 Fed. 991. 168

Pierce, Mandell v. Fed. Cas. 9008 203

Pinder, State v., 108 Atl. 43 247

Pishon, Bayfield Co. v., 156 N. W. 463 88

Pittaro, United States v., T. D. 2874 401

414 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Pittsburg, Ft. W. & C. Ry. Co., Haight v., Fed. Cas. 5903. 315
Platteville, Karr Piquett Mining Company v., 157 N. W.

763 182

Plumer v. Commonwealth, 3 Grattan (Va.), 645 210

Pollock v. Farmers Loan and Trust Company, 157 U. S.

429 237

Pollock v. Farmers Loan and Trust Company, 158 U. S.

601 238

Porter v. Lederer, 267 Fed. 739 308

Pratt, Halstead v., 14 Haw. 38 17

Pratt, Oahu R. & L. Co. v., 14 Haw. 126 109

Pratt, Peacock v., 121 Fed. 772 236

Pratt, Robertson v., 13 Haw. 590 239

Prentiss v. Eisner, 260 Fed. 589 144

Prentiss v. Eisner, 267 Fed. 16 -. . . . 145

Prudential Insurance Company v. Herold, 247 Fed. 681 . 297

Public Service Railway Company v. Herold, 229 Fed. 902. 375

Purnell v. Page, 45 S. E. 534 268

Putnam, Trefry v., 116 N. E. 904 52

R

Railroad, Bailey v., 89 U. S. 604 383

Railroad Company, Bailey v., 106 U. S. 109 190

Railroads, Barnes v., 84 U. S. 294 191

Railroad Company v. Collector, 100 U. S. 595 211

Railroad Company, Haight v., 73 U. S. 15 316

Railroad Company v. Jackson, 74 U. S. 268 212

Railroad Company, United States v., 84 U. S. 322 276

Rau v. United States, 260 Fed. 131 381

Rensselaer and Saratoga Railway Company v. Delaware

and Hudson Company, 168 App. Div. N. Y. 699 324

Rensselaer and Saratoga Railway Company v. Delaware

and Hudson Company, 257 Fed. 555 345

Rensselaer and Saratoga Railway Company v. Irwin, 239

Fed. 739 37

Rensselaer and Saratoga Railway Company v. Irwin, 249

Fed. 726 38

ALPHABETICAL TABLE OF CASES 415

References are to Case Numbers

Rensselaer and Saratoga Railway Company v. Irwin, 252

Fed. 921 39

Reynolds v.. Williams, Fed. Cas. 11734 395

Ridgway v. United States, 18 Ct. Cls. 707 346

Ritchie, United States v., Fed. Cas. 16168 277

Roberts v. Anderson, 226 Fed. 7 396

Roberts v. Lowe, 236 Fed. 604 347

Robertson v. Pratt, 13 Haw. 590 239

Rock Island, Arkansas and Louisiana Railway Company

v. United States Supreme Court, October, 1920 372

Rodway, Commercial Trav. Life & A. Ass'n v., 235 Fed.

370 102

Rowse, Glasgow v., 43 Mo. 479 195

S

Sallie F. Moon Company v. Commission, 163 N. W. 639. 46

San Francisco and P. S. S. Co. v. Scott, 253 Fed. 854 178

San Francisco Savings & Loan Society v. Cary, Fed. Cas.

12317 397

Sargent Land Company v. Von Baumbach, 207 Fed. 423. 40

Sargent Land Company, Von Baumbach v., 219 Fed. 31. 68

Sargent Land Company, Von Baumbach v., 242 U. S. 503 . 188

Savannah v. Hartridge, 8 Ga. 23 240

Savannah, Waring v., 60 Ga. 93 70

Savings Bank of Pittsburg v. United States, 16 Ct. Cls. 335. 378

Savings Bank, United States v., 104 U. S. 728 359

Savings Institution v. Blair, 116 U. S. 200 348

Savings Union, Cary v., 89 U. S. 38 386

Schillinger, United States v., Fed. Cas. 16228 64

Schuylkill Nav. Co. v. Elliott, Fed. Cas. 12497 213

Schwab, Scott v., 255 Fed. 57 41

Scott, Goldfield Consolidated Mines Company v., 247

U. S. 126 181

Scott, San Francisco and P. S. S. Co. v., 253 Fed. 854. . . 178

Scott v. Schwab, 255 Fed. 57 41

Scott v. Western Pacific Company, 246 Fed. 545 119

Shaefer v. Ketchum, Fed. Cas. 12693 349

416 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

Shaffer v. Carter, 252 U. S. 37 241

Shaffer v. Howard, 250 Fed. 873 242

Shaw, Campbell v., 11 Haw. 112 226

Shaw, Honolulu Iron Works v., 11 Haw. 112 226

Sigel, Freedman v., Fed. Cas. 5080 262

Silver King Consolidated Mining Co., United States v.,

D. C. Utah, October 16, 1919 65

Skinner v. Union Pacific Coal Company, 249 Fed. 152. . . 42
Slack, Michigan Central Ry. Company v., Fed. Cas.

9527 339

Slack, Michigan Central Railway Company v., Fed. Cas.

9527 A 204

Smietanka, First Trust and Savings Bank v. (C. C. A. 7th

Circ), October, 1920 104

Smietanka, Jackson v., 267 Fed. 932 82

Smietanka, Kohlhammer v., 239 Fed. 408 367

Smith, In re, 16 Haw. 796 137

Smith v. Dirckx, 223 S. W. 104 243

Smith, United States v., Fed. Cas. 16341 66

Soule, Pacific Insurance Company v., 74 U. S. 433 394

Southern Pacific Company v. Lowe, 238 Fed. 847 43

Southern Pacific Railway Company v. Lowe, 247 U. S.

330 44

Southern Pacific Railway Company v. Muenter, 260 Fed.

837 146

Springer v. United States, 102 U. S. 586 244

Stanton v. Baltic Mining Company, 240 U. S. 103 183

State ex rel. American Manufacturing Company v. Koeln,

211 S. W. 31 214

State ex rel. Bolens v. Frear, 134 N. W. 673 245

State ex rel. Brenk v. Widule, 154 N. W. 696 44 A

State ex rel. Bundy v. Nygaard, 158 N. W. 87 45

State ex rel. Columbia Construction Company v. Tax

Commission, 165 N. W. 382 120

State ex rel. Hickox v. Widule, 163 N. W. 648 45 A

State ex rel. Howe v. Lee, 178 N. W. 471 45 B

State ex rel. Kempsmith v. Widule, 154 N. W. 695 45 C

ALPHABETICAL TABLE OP CASES 417
References are to Case Numbers

State ex rel. Manitowac Gas Company v . Tax Commission,

152 N. W. 848 97

State ex rel. Mariner v. Hampel, 178 N. W. 244 98

State ex rel. Meyer Bros. Drug Company v. Koeln, 222

S. W. 389 246

State ex rel. Moon v. Nygaard, 175 N. W. 810 121

State ex rel. Pfister v. Widule, 163 N. W. 641 36

State ex rel. Pfister Land Company v. Milwaukee, 165 N.

W. 23 184

State ex rel. Sallie F. Moon Co. v. Commission, 163 N. W.

639 46

State ex rel. Wickham v. Nygaard, 150 N. W. 513 248

State ex rel. Wisconsin Trust Company v. Phelps, 178 N.

W. 471 350

State v. Pinder, 108 Atl. 43 247

State Line and S. R. Company v. Davis, 228 Fed. 246. . . 373

State Tax on Foreign-held Bonds, 82 U. S. 300 249

Stegall v. Thurman, 175 Fed. 813 351

Stern Milling Company v. Wisconsin Tax Commission, 175

N. W. 931 161

Stewart v. Barnes, 153 U. S. 456 352

Stockdale, Home Mutual Insurance Company v., Fed.

Cas. 6662 197 A

Stockdale v. Insurance Companies, 87 U. S. 323 215

Stockton v. Lederer, 262 Fed. 173 122

Stockton, Lederer v., 266 Fed. 676 108

Stoffregan v. Moore, 264 Fed. 232 47

Stone v. Tax Commissioner, 126 N. E. 373 48

Stone Tracy Company, Flint v., 220 U. S. 107 229

Stratton's Independence v. Howbert, 207 Fed. 419 185

Stratton's Independence v. Howbert, 231 U. S. 399 49

Straus v. Abrast Realty Company, 200 Fed. 327 369

Superior v. Allouez Bay Dock Company, 164 N. W. 362 . 258

Suter v. Jordan Marsh Company, 113 N. E. 580 325

Sybrandt v. United States, 19 Ct. Cls. 461 363

418 ALPHABETICAL TABLE OP CASES

References are to Case Numbers

T

Tax Assessor, Hawaiian Commercial and Sugar Company

v., 14 Haw. 601 170

Taney, Justice, Letter to Secretary Chase, 157 U. S. 701 . 264

Taxation of Salaries of Judges, In re, 42 S. E. 970 263

Tax Commission, State ex rel. Columbia Construction

Company v., 165 N. W. 382 120

Tax Commission, State ex rel. Manitowac Gas Company

v., 152 N. W. 848 97

Tax Commissioner, Osgood v., 126 N. E. 371 34

Tax Commissioner, Stone v., 126 N. E. 373 48

Tax Commissioners, Biscoe v., 128 N. E. 16 269

Tax Commissioners, Blackman v., 128 N. E. 16 269

Tax Commission, Maguire v., 120 N. E. 162 202

Third Avenue Railway Company, Central Trust Com-
pany v., 193 Fed. 286 117

Third Avenue Railway Company, Central Trust Com-
pany v., 198 Fed. 774 118

Thorne v. Anderson, 240 U. S. 115 252

Thurman, Stegall v., 175 Fed. 813 351

Tilden, United States v., Fed. Cas. 16519 221

Towne v. Eisner, 242 Fed. 702 50

Towne v. Eisner, 245 U. S. 418 51

Towne Manufacturing Company v. Travis, D. C. S. D. N.

Y. Judge Knox, 1919 250

Traylor Engineering and Manufacturing Company v.

Lederer, 266 Fed. 583 147

Travis, Towne Manufacturing Company v., D. C. S. D. N.

Y. Judge Knox, 1919 250

Travis v. Yale and Towne Manufacturing Company, 252

U.S. 60 251

Trefry, Dunn v., 260 Fed. 147 387

Trefry, Faulkner v., 118 N. E. 229 194

Trefry, Goldman v., 120 N. E. 74 196

Trefry," Maguire v., 253 U. S. 12 92

Trefry v. Putnam, 116 N. E. 904 52

ALPHABETICAL TABLE OF CASES 419

References are to Case Numbers

Trefry, Wilder v., 125 N. E. 689 72

Turner, United States v., Fed. Cas. 16548 402

Turrish, Lynch v., 236 Fed. 653 84

Turrish, Lynch v., 247 U. S. 221 85

Tyee Realty Company v. Anderson, 240 U. S. 115 252

U

Underwood Typewriter Company v. Chamberlain, 108

Atl. 154 99

Union Hollywood Water Company v. Carter, 238 Fed. 329. 53
Union Pacific Coal Company, Skinner v., 249 Fed. 152. . . 42
Union Pacific Railway Company, Brushraber v., 240 U. S.

1 225

Union Pacific Railway Company, United States v., 1 Fed.

97 361

United States v. Acorn Roofing Company, 204 Fed. 157 . 353
United States v. Aetna Life Insurance Company, 260 Fed.

333 148

United States v. Alpha Portland Cement Company, 242

Fed. 978 , 54

United States v. Alpha Portland Cement Company, 257

Fed. 432 55

United States, Alpha Portland Cement Company v., 261

Fed. 339 1

United States, Associated Pipe Line Company v., 258 Fed.

800 155

United States v. Benowitz, 262 Fed. 223 354

United States, Biwabik Mining Company v., 242 Fed. 9. . 179
United States v. Biwabik Mining Company, 247 U. S.

116 186

United States, Boston & Maine Railway Company v., 265

Fed. 578 159

United States, Boughton v., 12 Ct. Cls. 330 331

United States, Butterick Company v., 240 Fed. 539 193

United States, Cheatham v., 92 U. S. 85 332

United States, Chicago and Alton Railway Company v.,

53 Ct. Cls. 41 76

420 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

United States v. Chicago and Alton Railway Co., D. C. N.

D. Ill, January 5, 1920 398

United States v. Christine Oil and Gas Company, D. C.

W. D. La., September 8, 1920 56

United States v. C, C, C. & St. L. By. Company, D. C,

S. D. Ohio, February 23, 1916 87 A

United States, Cleveland, C, C. & St. L. Ry. Co. v., 242

Fed. 18 5

United States v. Cleveland, etc., Ry. Co., 247 U. S. 195. 57

United States v. Coulby, 251 Fed. 982 302

United States v. Coulby, 258 Fed. 27 303

United States, Dollar Savings Bank v., 86 U. S. 227 334 A

United States, Emery, Bird, Thayer Realty Company v.,

198 Fed. 242 334 B

United States v. Erie Railway Company, 106 U. S. 327. . 216
United States v. Erie Railway Company, Fed. Cas. 15056. 253
United States, Federal Publishing Company v., 240 Fed.

Fed. 539 193

United States, First National Bank of Greencastle v., 15

Ct. Cls. 225 335

United States v. Frost, Fed. Cas. 15172 58

United States, Galm v., 39 Ct. Cls. 55 12

United States v. General Insp. & Loading Co., 192 Fed.

Fed. 223 123

United States v. General Insp. & Loading Co., 204 Fed.

657 355

United States Glue Co. v. Oak Creek, 153 N. W. 241. .. . 67

United States Glue Co. v. Oak Creek, 247 U. S. 321 254

United States v. Grand Rapids & I. R. Co., 239 Fed. 153 217
United States v. Guaranty Trust & Savings Bank, 253 Fed.

291 169

United States v. Guggenheim Exploration Co., 238 Fed.

231 59

United States v. Guinzburg, D. C. S. D. N. Y. October 22,

1920 60

United States, Greenport Basin & Construction Co. v.,

269 Fed. 58 197

ALPHABETICAL TABLE OF CASES 421

References are to Case Numbers

United States, Houston Belt & Terminal Ry. Co. v., 250

Fed. 1 18

United States v. Isham, 84 U. S. 496 399

United States v. John J. McHatton, el al, T. D. 3043 400

United States v. Johnston, 124 U. S. 236 218

United States v. Joline & Robertson, 231 U. S. 144 124

United States, La Belle Iron Works v., Ct. Cls., June 28,

1920, No. 34603 307

United States v. Little Miami, etc., R. Co., 1 Fed. 700. . . 356

United States, Little Miami Ry. Co. v., 108 U. S. 277. . . 176

United States v. Long, D. C. Mont., January 16, 1920. . . 61

United States, Maryland Casualty Co. v., 251 U. S. 342. . 289
United States, Maryland Casualty Co. v., 52 Ct. Cls.

201 288

United States v. Mayer, Fed. Cas. 15753 149

United States v. Military Construction Co., 204 Fed. 153 . 357
United States v. Minneapolis Threshing Machine Co., 229

Fed. 1019 358

United States v. Moore, 95 U. S. 760 219

United States v. Nashville, C. & St. L. Ry., 249 Fed. 678. 220
United States, Nashville, C. & St. L. Ry. Co. v., T. D.

3125 176 A

United States v. New York & H. Ry. Co., 265 Fed. 331 . . 162

United States v. Nipissing Mines Company, 202 Fed. 803. 187

United States v. O. R. & N. Co., 251 Fed. 211 62

United States v. Philadelphia, Baltimore & Washington

Railway Company, 262 Fed. 188 : . 63

United States v. Philadelphia Knitting Mills Company,

D. C. E. D. Penn. 1920 150

United States v. Pittaro, T. D. 2874 401

United States, Rau v., 260 Fed. 131 381

United States v. Railroad Company, 84 U. S. 322 276

United States, Ridgway v., 18 Ct. Cls. 707 346

United States t;. Ritchie, Fed. Cas. 16168 277

United States, Rock Island, Arkansas & Louisiana Rail-
way Co. v., Supreme Court, October, 1920 372

United States v. Savings Bank, 104 U. S. 728 359

422 ALPHABETICAL TABLE OF CASES

References are to Case Numbers

United States, Savings Bank of Pittsburg v., 16 Ct. Cls.

335 378

United States v. Schillinger, Fed. Cas. 16228 64

United States v. Silver King Consolidated Mining Com-
pany, D. C. Utah, October 16, 1919 65

United States v. Smith, Fed. Cas. 16341 66

United States, Springer v., 102 U. S. 586 244

United States, Sybrandt v., 19 Ct. Cls. 461 363

United States v. Tilden, Fed. Cas. 16519 221

United States v. Turner, Fed. Cas. 16548 402

United States v. Union Pacific Railway Company, 1 Fed.

97 361

United States v. Whitridge, 231 U. S. 144 124

United States, Willingham v., 208 Fed. 137 382

United States, Woolner v., 13 Ct. Cls. 355 362

Urquhart v. Marion Hotel Company, 194 S. W. 1 326

V

Van Beil v. Brogan, 65 Pa. Sup. Ct. 384 327

Van Dyke v. Milwaukee, 146 N. W. 812 69

Van Rensselaer v. Dennison, 8 Barb. (N. Y.) 23 328

Village of Westby v. Bekkedal, 178 N. W. 451 100

Von Baumbach, Sargent Land Co., v., 207 Fed. 423 40

Von Baumbach v. Sargent Land Co., 219 Fed. 31 68

Von Baumbach v. Sargent Land Co., 242 U. S. 503 188

W

Walker, Gulf & Interstate Ry. Co. v., D. C. W. D. Texas,

May 13, 1920 131

Walsh, Brewster v., D. C. Conn., December 10, 1920 4

Walsh, Industrial Transit Co. v., 222 Fed. 437 20

Wardell, Cryan v., 263 Fed. 248 77

Wardell, Lawrence v ., T. D. 3102 (D. C. N. D. Cal.) 1920 . 200

Waring v. Savannah, 60 Ga. 93 . 70

Wattles, Loomis v., 266 Fed. 876 338

Weiss v. Mohawk Mining Co., 264 Fed. 502 189

Wells, Alderman v., 67 S. E. 781 223

ALPHABETICAL TABLE OF CASES 423

References are to Case Numbers

Werth, Commonwealth v., 82 S. E. 695 227

West End Street Ry. Co. v. Malley, 246 Fed. 625 71

Western Pacific Ry. Co., Equitable Trust Co. v., 236 Fed.

813 103

Western Pacific Co., Scott v., 246 Fed. 545 119

Whitridge, United States v., 231 U. S. 144 124

Wickham v. Nygaard, 150 N. W. 513 248

Widule, State ex rel. Brenk v., 154 N. W. 696 44 A

Widule, State ex rel. Hickox v., 163 N. W. 648 45 A

Widule, State ex rel. Kempsmith v., 154 N. W. 695 45 C

Widule, Pfister v., 163 N. W. 641 36

Widule, Wisconsin Trust Company v., 159 N. W. 630. ... 222

Wilcox v. Middlesex Commissioners, 103 Mass. 544 125

Wilder v. Hawaiian Trust Company, Trustee, 20 Haw. 589. 126

Wilder S. S. Company, In re, 16 Haw. 567 138

Wilder v. Trefry, 125 N. E. 689 72

Williams, Reynolds v., Fed. Cas. 11734 395

Willingham v. United States, 208 Fed. 137 382

Wisconsin Tax Commission, Stem Milling Co. v., 175 N.

W. 931 -. 161

Wisconsin Trust Company v. Phelps, 178 N. W. 471 350

Wisconsin Trust Company v. Widule, 159 N. W. 630 222

Wollbrink, Ludlow Saylor Wire Co. v., 205 S. W. 196. ... 233

Woods v. Lewellyn, 252 Fed. 106 73

Woolner v. United States, 13 Ct. Cls. 355 362

Y

Yale and Towne Manufacturing Co., Travis v., 252 U. S.
60 251

NUMERICAL TABLE OF CASES

References are to Case Numbers

Atlantic Reporter

95 Atl. 100 320

105 Atl. 511 321

107 Atl. 329 322

108 Atl. 43 247

108 Atl. 154 99

108 Atl. 528 323

Court of Claims

12 Ct. Cls. 330 331

13 Ct. Cls. 355 362

15 Ct. Cls. 225 335

16 Ct. Cls. 335 378

18 Ct. Cls. 707 346

19 Ct. Cls. 461 363

39 Ct. Cls. 55 12

52 Ct. Cls. 201 288

53 Ct. Cls. 41 76

Federal Cases

Fed. Cas. 5080 262

Fed. Cas. 5903 315

Fed. Cas. 6159 132

Fed. Cas. 6662 197 A

Fed. Cas. 7114 21

Fed. Cas. 7142 199

Fed. Cas. 8943 86

Fed. Cas. 9008 203

Fed. Cas. 9443 203 A

Fed. Cas. 9527 339

Fed. Cas. 9527-a 204

Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.
Fed. Cas.

11087 209

11734 395

12317 397

12497 213

12693 349

15056 253

15172 58

15753 149

16168 277

16228 64

16341 66

16519 221

16548 402

Federal Reporter

1 Fed. 97 361

1 Fed. 700 356

102 Fed. 130 334

121 Fed. 772 236

162 Fed. 581 333

175 Fed. 813 351

176 Fed. 471 116

192 Fed. 223 123

193 Fed. 286 117

198 Fed. 199 291

198 Fed. 242 334 B

198 Fed. 774 118

200 Fed. 327 369

201 Fed. 918 282

201 Fed. 1011 114

202 Fed. 803 187

425

426 NUMERICAL TABLE OP CASES

References are to Case Numbers

203 Fed. 876 115 233 Fed. 87 159

204 Fed. 153 357 233 Fed. 704 180

204 Fed. 157 353 234 Fed. 125 256

204 Fed. 657 355 234 Fed. 474 174

207 Fed. 419 185 234 Fed. 590 374

207 Fed. 423 40 235 Fed. 370 102

208 Fed. 137 382 235 Fed. 686 78

209 Fed. 991 157 236 Fed. 604 347

210 Fed. 577 105 236 Fed. 653 84

210 Fed. 933 163 236 Fed. 661 83

211 Fed. 743 166 236 Fed. 813 103

212 Fed. 758 337 238 Fed. 231 59

213 Fed. 777 153 238 Fed. 329 53

215 Fed. 967 74 238 Fed. 559 165

215 Fed. 991 168 238 Fed. 847 43

216 Fed. 83 2 239 Fed. 153 217

218 Fed. 188 278 239 Fed. 184 343

218 Fed. 206 279 239 Fed. 408 367

218 Fed. 600 164 239 Fed. 568 89

218 Fed. 905 283 239 Fed. 739 37

219 Fed. 31 68 240 Fed. 202 255

221 Fed. 59 75 240 Fed. 539 193

221 Fed. 86 158 240 Fed. 665 192

222 Fed. 437 20 242 Fed. 9 179

223 Fed. 472 167 242 Fed. 18 5

223 Fed. 1022 280 242 Fed. 492 344

224 Fed. 585 9 242 Fed. 702 50

224 Fed. 657 284 242 Fed. 709 15

225 Fed. 437 87 242 Fed. 978 54

226 Fed. 7 396 245 Fed. 1 22

228 Fed. 246 373 245 Fed. 792 129

228 Fed. 296 384 246 Fed. 270 151

228 Fed. 505 139 246 Fed. 387 3

229 Fed. 902 375 246 Fed. 545 119

229 Fed. 1019 358 246 Fed. 625 71

230 Fed. 110 80 247 Fed. 559 295

231 Fed. 110 10 247 Fed. 681 297

NUMERICAL TABLE OF CASES '427
References are to Case Numbers

248 Fed. 568 294 261 Fed. 339 1

248 Fed. 688 152 262 Fed. 114 371

249 Fed. 27 370 262 Fed. 173 122

249 Fed. 103 301 262 Fed. 188 63

249 Fed. 152 42 262 Fed. 215 293

249 Fed. 678 220 262 Fed. 223 354

249 Fed. 726 38 262 Fed. 550 260

250 Fed. 1 18 263 Fed. 248 77

250 Fed. 802 366 263 Fed. 527 177

250 Fed. 817 298 264 Fed. 232 47

250 Fed. 856 28 264 Fed. 502 189

250 Fed. 873 242 265 Fed. 331 162

251 Fed. 211 62 265 Fed. 578 156

251 Fed. 524 292 266 Fed. 161 141

251 Fed. 982 302 266 Fed. 583 147

252 Fed. 106 73 266 Fed. 676 108

252 Fed. 921 39 266 Fed. 876 338

253 Fed. 291 169 267 Fed. 16 145

253 Fed. 854 178 267 Fed. 498 368

255 Fed. 57 41 267 Fed. 739 308

256 Fed. 380 287 267 Fed. 932 82

256 Fed. 383 23 267 Fed. 968 281

257 Fed. 133 128 268 Fed. 207 4

257 Fed. 221 330 268 Fed. 377 306

257 Fed. 432 55 268 Fed. 427 127

257 Fed. 555 345 269 Fed. 58 197

257 Fed. 576 340

258 Fed. 27 303 Georgia Reports

258 Fed. 81 286 8 Ga. 23 240

258 Fed. 208 106 60 Ga. 93 70

258 Fed. 225 25

258 Fed. 800 155 Hawali

260 Fed. 131 381 11 Haw. 112 226

260 Fed. 147 387 13 Haw. 590 239

260 Fed. 333 148 14 Haw. 38 17

260 Fed. 589 144 14 Haw. 126 109

260 Fed. 837 146 14 Haw. 601 170

428 NUMERICAL TABLE OF CASES

References are to Case Numbers

14 Haw. 687 133 120 N. E. 162 202

15 Haw. 502 171 120 N. E. 686 309

16 Haw. 552 173 124 N. E. 107 207

16 Haw. 559 172 125 N. E. 551 318

16 Haw. 567 138 125 N. E. 689 72

16 Haw. 796 137 126 N. E. 371 34

16 Haw. 796 19 126 N. E. 373 48

18 Haw. 129 198 127 N. E. 497 91

18 Haw. 206 136 128 N. E. 16 269

18 Haw. 530 175

18 Haw. 596 135 Northwestern Reporter

20 Haw. 589 126 134 N. W. 673 245

23 Haw. 96 231 146 N. W. 812 69

147 N. W. 1016 101

150 N. W. 513 248

152 N. W. 848 97

153 N. W. 241 67

154 N. W. 695 45 C

154 N. W. 696 44 A

156 N. W.463 88

157 N. W. 763 182

158N.W. 87 45

159 N. W. 630 222

163 N. W. 639 46

New York Supplement Reports i aq tvj w rai 3fi

170N.Y.S.98 107 163 n! w! 648!. . . . . . . . .45 A

175 N. Y. S. 337 208 164 N. W. 362 258

177 N. Y. S. 369 134 165 N. W. 23 184

165 N. W. 382 120

Northeastern Reporter j^rj jj_ ^y_ 5gg_ 224

108 N. E. 570 235 175 N. W. 810 121

113 N. E. 580 325 175 N. W. 931 161

116 N. E. 904 52 177 N. W. 90 314

118 N. E. 229 194 178 N. W. 244 98

118 N. E. 344 313 178 N. W. 451 100

118 N. E. 866 317 178 N. W. 471 350

120 N. E. 74 196 178 N. W. 471 45 B

Louisiana Ann. Reports

14 La. Ann. 197

265

14 La. Ann. 803

26

14 La. Ann. 865

390

Massachusetts Reports

50 Mass. 73

271

103 Mass. 544

125

NUMERICAL TABLE OF CASES

429

References are to Case Numbers

Opinions Attorney General

12 Op. A. G. 402 205

13 Op. A, G. 67 272

13 Op. A, G. 161 266

13 Op. A. G. 439 273

14 Op. A. G. 615 377

16 Op. A. G. 248 376

21 Op. A. G. 112 29

23 Op. A, G. 507 379

28 Op. A. G. 138 110

28 Op. A. G. 198 160

28 Op. A. G. 211 93

28 Op. A. G. 241. 392

29 Op. A. G. 217 341

30 Op. A. G. 230 & 273... 94

30 Op. A. G. 252 274

31 Op. A. G. 125 Ill

31 Op. A. G. 148 206

31 Op. A. G. 176. 112

31 Op. A. G. 213 30

31 Op. A. G. 301 31

31 Op. A. G. 304 32

31 Op. A. G. 403 113

31 Op. A, G, 441 275

31 Op. A. G. 459 380

31 Op. A. G. 475 267

31 Op. A. G. 617 142

Pennsylvania Reports

54 Pa. 356 312

59 Pa. 61 7

62 Pa. 241 8

255 Pa. 269 311

Pennsylvania Sup. Court Reports

65 Pa. Sup. Ct. 384 327

69 Pa. Sup. Ct. 122 319

Southeastern Reporter

42 S. E. 970 263

45 S. E. 534 268

67 S. E. 781 223

82 S. E. 695 227

101 S. E. 232 385

Southwestern Reporter

194 S.W.I 326

205 S. W. 196 233

211 S. W. 31 214

222 S. W. 389 246

223 S. W. 104 243

Treasury Decisions

T. D. 2874. 401

T. D. 3000 336

T. D. 3043 400

T. D. 3044 391

T. D. 3048 27

T. D. 3049 266 A

T. D. 3071 33

T. D. 3078 285

T. D. 3080 305

T. D. 3089 182 A

T. D. 3102 200

T. D. 3111 95

United States Reports

14 XL S. 435 270

73 U.S. 15 316

74 U. S. 268... 212

74 U. S. 433 394

77 U. S. 543 310

78 U. S. 113 259

79 U. S. 1 6

82 U. S. 63 14

82 U. S. 300 249

430 NUMERICAL TABLE OP CASES

References are to Case Numbers

84 U. S. 294 191 245 U. S. 151 13

84 U. S. 322 276 245 U. S. 418 51

84 U. S. 496 399 247 U. S. 116 186

86 U. S. 227 334 A 247 U. S. 126 181

87 U. S. 323 215 247 U. S. 165 257

89U.S.38 386 247 U. S. 179 79

89 U. S. 604 383 247 U. S. 189 81

92 U. S. 85 332 247 U. S. 195 57

93 U. S. 225 130 247 U. S. 221 85

95 U. S. 760 219 247 U. S. 321 254

100 U. S. 595 211 247 U. S. 330 44

102 U. S. 586 244 247 U. S. 339 24

104 U. S. 728 359 247 U. S. 347 35

106 U. S. 109 190 248 U. S. 71 16

106 U. S. 327 216 249 U. S. 223 299

106 U.S. 466 389 250 U. S. 376 90

108U.S.277 176 251 U. S. 342 289

116 U. S. 200 348 252 U. S. 37 241

124 U. S. 236 218 252 U. S. 60 251

153 U. S. 456 352 252 U. S. 189 11

157 U. S. 429 237 252 U. S. 523 296

157 U. S. 701 264 253 U. S. 12 92

158 U. S. 601 238 253 U. S. 245 261

177 U. S. 459 329 253 U. S. 412 230

220 U. S. 107 229

220 U. S. 178. 300 Miscellaneous Reports

231 U. S. 144 124 44 Ala. 593 232

231 U. S. 399 49 168 App. Div. N. Y. 699. . 324

239 U. S. 69 154 8 Barb. (N. Y.) 23 328

240 U. S. 1 225 35 Conn. 563 388

240 U. S. 103 183 3 Gratton, (Va.) 645 210

240 U. S. 115 252 1 McChord (S. C), 345. . 201

240 U. S. 118 365 43 Mo. 479 195

240 U. S. 122 364 53 N. H. 635 234

242U.S.503 188 64 N. Y. L. J. 1043 96

244U.S.585 290 173 Pac. 1062 228

SUBJECT INDEX

References are to Case Numbers

Accident insurance, proceeds not income 32

Accounts receivable, income 78

f 10, 78, 131,

Accrued items, income j 281, 283, 288,

I 289, 291, 294,

Agent, payments to principal by agent not taxable 27

Agent, payment to, taxable to principal 288, 289

Alien Property Custodian, income accruing in hands of,

liable to tax 393

Alien Property Custodian, returns of income by 393

Alimony, not taxable as income or deductible 13

Allocation of income, sources within the jurisdiction 96, 99

' 20, 23, 69,
Amortization of bond premium and discount . . 74, 75, 76,

146, 278, 281
Annual net income, profits accruing over period of years

14, 41, 80, 82

Appraisal upward, not income 74, 75

Association, distinction from partnership 301

~ 298-301, inc.,
396

Association, what is .

Bad debts, deduction 149, 171, 172

Bankruptcy, claims of government for income taxes. .336, 342
Bond interest, tax on, falls on creditor (or f 191, 199, 211,

debtor) 212, 215, 216,

272, 276
20, 23, 69,
74, 75, 76,
146, 278, 281,
89, 90, 94,
211, 212, 216

Bonds, sale of by obligor at discount 74, 75, 76, 146

431

Bonds, amortization of premium and discount
Bonds, income from owned by nonresidents . . .

432

SUBJECT INDEX
References are to Case Numbers

Book entries, income.

Capital assets, claims and property owned at in-
cidence of law

Capital assets, conversion of, income .

15, 16, 20,
22, 23, 44,

59, 74, 75,
76, 180, 187

Building and loan associations, exemption 105, 114, 115

Cancellation of lease, income 25, 77

Capital account, disbursements for furniture and fixtures. . 279

* 27, 44, 45,

60, 61, 65,
68, 78, 79,

80, 81, 87
4, 5, 14,

32, 40, 41,
44, 45, 57,

59, 61, 68,
78, 79, 80,

81, 87, 279

Citizens residing in Philippines 200

Claim for refund, necessity of before suit 127, 348, 372

Claim for refund, sufficiency when presented to local col-
lector 359, 377, 378

Claims, generally, see Practice.

"27, 44, 45,

60, 61, 65,
68, 78, 79,
80, 81, 87

224, 226, 228,
229, 230, 233,
239, 245, 247,
250, 251, 252

Community property laws, income 33

Compensation for services 82, 210

Compromise, evidence of 381

Compromise, of penalties " 380

Compromise, power of collector to effect 381, 382

Compromise, whether effected is question for jury 381

Compromise, with solvent taxpayer 376, 380

Claims, pre-existing, liquidation of not income. ..

Classification of persons and incomes, con-
stitutionality

SUBJECT INDEX
References are to Case Numbers

433

Constitutionality, classification of persons
and incomes

Effect of Sixteenth Amendment.

Compromises, money paid by way of cannot be applied to

taxes , . . 331

Constitutional law, disregard of unconstitutional law 30

' 224, 226, 228,

229, 230, 233,

239, 245, 247,

250, 251, 252

Disallowance of depletion deduction 183

125, 223, 227,

Double taxation \ 228, 231, 232,

245, 255, 390

225, 252, 257,

261

86, 225, 237,

241, 242, 364,

365, 366, 368,

369

223, 225, 230,

236, 241, 247,

250, 251

229, 234, 259,

262, 268-

274, inc. 275,

277

. , t • 4 , J 194, 213, 215,

Ex post facto income tax law \ _. ' ' '

Enjoinder of tax .

Equal protection, privileges and im-
munities

Exemption of sovereign instrumentalities .

Income as property.

Income taxes as direct .

195, 201, 233,

240, 247

237, 238, 244,

334 B

Jurisdiction, see Jurisdiction over Income.
Privileges and immunities, see Constitutionality, Equal
Protection.

Prospective tax measured by past income 213

' 192, 194, 213,

Retrospective tax 215, 243, 252,

400

434

SUBJECT INDEX
References are to Case Numbers

Constitutionally — Continwd

Sixteenth Amendment, see Sixteenth Amendment,
Effect of.

State tax on federal salaries 268-271, inc.

Surtaxes and graduated taxes 223, 224, 225, 247

Tax on income from exports 93, 256, 257

67, 91, 99,
Tax on income from interstate commerce. 100, 254, 255,

258

Tax on income from outside sources 92, 97, 98

Tax on income governed by property tax J 195, 201, 233,
provisions { 235, 240, 247

Tax on judicial salaries i _ ' .

( 268, inc.

Taxation to stockholders of undivided profits.6, 11, 364, 388

Unconstitutional part voids the whole 236, 238, 239

Use of federal computation 99, 207, 208, 309

Vested right in deduction 246

2, 3, 18,

Constructive receipt of income 28, 37, 38,

71, 86

Contracts for purchase of goods, not inventoriable 391

Contributions to Red Cross 142

4, 5, 14,

32, 40, 41,

44, 45, 49,

57, 59, 61,

68, 78, 79,
80, 81, 87,

279

Cooperative banks, exemptions 112

2, 3, 18,

Corporate entity, disregard of \ 28, 37, 38,

39, 71

1, 34, 40,

45 B, 48,

54, 55

Conversion of capital assets, income .

Corporate reorganization, income.

SUBJECT INDEX 435

References are to Case Numbers

Corporations, related, transfers between, income. .

Deduction, addition to insurance reserves. .

15, 16, 22,

42, 43, 44,

63, 131

Covenants to pay taxes, construction of 310-328, inc.

Credit unions, exemptions 112

Creditors' dividend, comes after taxes 342

Death, before tax due, effect of 192, 203

Death of Collector, effect on suit against 343

Debt, United States may bring an action of 334 A, 358

281, 283, 284,

288, 289, 290,

291, 292, 294,

297

Alimony not deductible 13

Bad debts 149, 171, 172

Bonds sold at discount by obligor 74, 75, 76, 146

By banks of taxes on their shares 163-169, inc.

Contributions to Red Cross 142

Estate tax 143, 144, 145

Excessive salary payments 139, 147, 150

Expenditure for clearing property 135

Expenditure for new buildings 135

Expenditure for office equipment 279, 291

Expenditure for professional books and instruments . . 137

Expenses once accounted in prior years 136

Federal income taxes 161

Interest in excess of capital stock 151-160 inc., 162

Interest lost through unproductive capital 4, 81

Interest on deferred insurance policy payments. . . 286, 295
Litigation expenses incident to acquisition of prop-
erty 140

Loan to corporation forgiven 62, 172

Losses incurred in trade 127, 128, 138, 141

Losses of money loaned 171, 172

Necessary expenditures for nonbetterments 133, 135

Net addition to reserves, see Insurance Companies, Net
Addition, etc.

Departmental construction of statutes, effect of

436 SUBJECT INDEX

References are to Case Numbers

Deduction — Continued

™a i a -u. J 129 » 130 » 132 >

Old property replaced with new j ' ' -_ '

Payments to subsidiary by parent 131

Scrapping old vessel 138

Taxes paid for taxpayer by another 148

Vested right to 246

" 89, 129, 218,
219, 334 A

Depletion, apportioned between lessor and lessee 182 A

49, 180, 181,

As including depreciation 183, 184, 185,

, 187, 188, 371

Deduction on account of 7, 8, 49

7, 8, 49,

Not a matter of right 181, 182, 183,

185

Right to belongs to fee owner 186, 189

Right to deduction 7, 8, 49

Should be allowed in computing income 179, 180

Should be allowed to a lessee 179, 182 A

Depreciation, as an expense or loss 132, 175, 176

49, 180, 181,

As including depletion 183, 184, 185,

, 187, 188, 371
Does not include bond amortization 281

r» * ■ 1 A a w J 49 » 184 » 185 »

Does not mclude depletion j ' '

Fall in value stocks and bonds j ' ' '

How determined 174

Includes wear and tear but not market value loss 174

Maintenance charges may also be deducted 176 A, 178

Of bonds and stocks 176, 177

Of leaseholds 68, 175, 179

„. . . . f 237, 238, 244,

Direct tax, mcome tax as i ' '

SUBJECT INDEX
References are to Case Numbers

Discount on bonds owned, amortization of . . . .
Disregard of corporate entity

437

Dividends, bookkeeping transfer .

Corporate, income.

20, 23, 69,
278, 281
2, 3, 18,

28, 37, 38,
39, 71

Dissolution before tax due, effect of | 123, 383, 3 . 9 ^

" 15, 16, 22,

42, 43, 44,

63

Constructive receipt of 86

24, 27, 35,
36, 42, 43,
44, 46, 47,
60, 69, 72,
83, 84, 85,
383, 386, 397
From earnings, meaning of, payment by holding cor-
poration from proceeds of liquidation dividends re-
ceived 121

In kind, income 35

Income, when declared and payable 60, 86, 197 A

Liquidating, see Liquidating Dividends.

Mutual savings banks 386, 397

Paid with exempt securities, exemption Ill

199, 203 A, 205,

Tax on is tax on shareholder { 209, 212, 273,

276

24, 35, 36,

42, 43, 44,

46, 47, 60,

69, 72, 83,

84, 85,

203 A, 383, 386,

397

Doing business, immaterial to income tax liability 28, 384

Domicile, determines liability to tax 385, 387

Taxable, what are.

438

SUBJECT INDEX
References are to Case Numbers

Double taxation .

Doubt, resolution in favor of taxpayer .

125, 223, 227,
228, 231, 232,
245, 255, 390

Double taxation, must be asserted clearly by legislature. . . 282

13, 89, 115,

240, 301, 302,
303

Embezzlement, proceeds not income 381

Embezzlement, loss by, occurs when 87 A

86, 225, 237,

241, 242, 364,
365, 366, 368,

369

223, 230, 236,

241, 247, 250,

251

86, 225, 237,

241, 242, 364,

365, 366, 368,

369

Estate tax, deduction of 143, 144, 145

Excess profits tax, Act of 1917 construed 197

Invested capital, effect of stock dividends 307

Of 1917, is an excise tax 308

Taxpayer having no capital invested 305, 306, 308

Exchange of property for corporate stock, income. ... 1, 40, 55

Exchange, stock for stock, income 34, 45 B, 48

' 89, 129, 218,
219, 334 A

Exemption, agricultural purchasing organization 113

Allocation of specific exemption to exempt income .... 277

Building and loan associations 105, 114, 115

Cooperative banks 112

Corporation not engaged in business, tax liability. .28, 384

Corporation organized not for profit 18, 102

" 123, 383, 392,

Enjoinder of collection of taxes .

Equal protection, privileges and immunities. .

Equitable jurisdiction, in tax cases.

Executive construction of statutes, effect of . . .

Dissolution before due date of tax .

400

SUBJECT INDEX 439

References are to Case Numbers

Exemption — Continued

Dividend paid with exempt securities Ill

Fraternal benefit society 102

Houlton grange ; 113

Income from exempt property 109

Income from property already taxed 125

Interest on United States bonds, Act of 1909 110

Massachusetts credit unions 112

Municipal corporations 274

Ownership of United States bonds Ill

Political subdivisions 274

Public service corporations 53

' 103, 107, 116,

Receivers of corporate property 117, 118, 119,

124

Salaries of federal officers 268-271, inc.

Salaries of state officers 259, 275, 277

Subsidy to a railroad 109

Trustee for exempt institution 108, 122

Trustees for unascertained persons 104, 126

Trustees of corporate property 106

Expense allowances as income 12, 19, 29

Expenses, disbursements for furniture and fixtures . . . 279, 291
Expenses, may be deducted in addition to depreciation. 176 A, 178

Exports, tax on income from 93, 256, 257

Fair market value, resolution of board of directors 59

Farmers' crops as income 61, 239

Federal salaries, tax on 268-271, inc.

Fiscal year, change of, retroactively 391

Fiscal year, "next preceding assessment" 195

Fraternal benefit society, exemption 102

Fraud, escape of taxes by legal means 399

Furniture and fixtures, expense item 279, 291

Gifts, income 17, 62, 109

Holding corporations, dividends by 120, 121

Houlton grange, exemption 113

Income, accident insurance proceeds 32

440

SUBJECT INDEX
References are to Case Numbers

Income — Continued

Accounts receivable 78

10, 78, 131,

Accrued items 281, 283, 288,

289, 291, 294

Alimony not included 13

Allocation of, sources within the jurisdiction 96, 99

4 f 195, 201, 233,

AsP">perty 1 240,247

Bills rendered but not paid 10

15, 16, 20,
22, 23, 44,
59, 74, 75,
76, 180, 187

Cancellation of lease 25, 77

Community property laws 33

Compensation for services. 82, 210

2, 3, 18,

Constructive receipt of 28, 37, 38,

39, 71, 86

Contingent right to receive, when taxable 9, 10, 73

Conversion of capital assets, income, see Conversion
of Capital Assets.

24,

Book entries .

Corporate dividends .

27, 35,
36, 42, 43,
44, 46, 47,
60, 69, 72,
83, 84, 85,
I 383, 386, 387
Corporate reorganization, acquisition of trust fund. . . 395

Crops raised and consumed 61, 239

' 278, 279, 281,

Deferred insurance premiums \ 287, 288, 289,

291, 294
' 11, 24, 26,

Definition of I 45, 49, 52,

70, 222

SUBJECT INDEX

441

References are to Case Numbers

Income — Continued

Dividends in kind 35, 111

278-282, inc., 287,
291, 294, 297

From corporate reorganization .

Dividends of insurance companies as
income to companies.

Dividends, when income 60, 86, 197 A

Exchange of stock for stock 34, 45 B, 48

Expense allowances 12, 19, 29

Farmers' crops 61, 239

1, 34, 40,
45 B, 48, 55

From exchange of property for corporate stock. .1, 40, 55
From exports, constitutionality of tax on .... 93, 256, 257

Gifts, inheritances, etc., as income 17, 62, 109

Includes expense allowances by employer 12, 19, 29

Includes value of mineral and oil recovered . .7, 8, 181, 185

Insurance commissions 9, 10, 73

Insurance premiums, see Deferred Insurance Premiums.
Investments of in capital assets, immaterial 53

67, 88, 89,
90, 92, 93,
94, 95, 96,

97, 98, 100,
204, 222, 241,
242, 249, 253

Liquidating dividends 36, 69, 84, 85

' 27, 44, 45,
60, 61, 65,

68, 78, 79,
80, 81, 87

Means same in excise tax act as in income tax act. . . . 179
Measurement of, sale of capital assets 5, 45, 57, 81

,. . J 40, 68, 184,

Mmmg royalties A lg8

Money invested in inventories 388

Mutual insurance companies, abated premiums

286, 295, 296

Jurisdiction to tax.

Liquidation of claims preexisting .

442 SUBJECT INDEX

References are to Case Numbers
Income — Continued

V> V, W + - f 56 > 58 ' M «

Purchase obligations i fifi „ 8

Railroads, to be determined by Interstate Commerce

Commission Rules 398

Received in coined money 394

Reduction in reserve funds, insurance companies . 288, 289

Rent paid to stockholders for corporate prop-
erty

Sources of.

Stock dividends .

2, 3, 18,

28, 37, 38,

39, 71,

Rights to subscribe, sale of 52

Sale of capital assets, see Conversion of Capital Assets.

Severance from capital necessary 11

67, 88, 89,

90, 91, 93,

94, 95, 96,

97, 98, 100,

222, 249, 253

11, 30, 50,

51, 52, 63,

72, 338

Stockholders' shares in corporate profits 6, 11, 21

Taxable, must be received 11, 289

" 125, 223, 232,
245, 390
131, 281, 283,
288, 289, 291,
294
278, 279, 281,
287, 288, 289,
291, 294
20, 23, 74,
75
Use of inventories 31, 388

What is, question of law or fact ' ' '

[ 55

What is, question of substance and not of form . . 11, 16, 45

Taxation of, from property already taxed .
Unmatured interest coupons

Unpaid insurance premiums

Unrealized appreciation

Insurance companies, accrued premiums, in-
come

Dividends of, income.

SUBJECT INDEX 443

References are to Case Numbers

Income — Continued

When "acquired" 17

When taxable, transfer of legal title 17, 86

' 46, 63, 192,

Income tax, nature of 195, 237, 238,

244, 394

Income taxes as deduction 161

Insurance, accident, income 32

Insurance commissions, when taxable 9, 10, 73

' 278, 279, 281,

287, 288, 289,

291, 294

278-282, inc., 287,

291, 294, 297

Interest on deferred policy payment, deduction . . . 286, 295

Miscellaneous interest receipts, income 285

281, 283, 284,
Net addition l,o reserve funds 288, 289, 290,

291, 292, 294,
297

Protective trade association as 285

Reduction in reserve funds, income 288, 289

' 283, 284, 288,
Reserves required by law 289, 290, 291,

292, 294, 297
Insurance premiums, receipts of mutual protection society 285

" 278, 279, 281,

Insurance premiums, unpaid, as income 287, 288, 289,

291, 294
Interest, allowable from collector until appellate decision. . 337

' 131, 281, 283,

Coupons unmatured, income 288, 289, 291,

294

Losses of through unproductive capital 4, 81

On deferred policy payments, deduction by insur-
ance companies 286, 295

Right to recover from collector 177, 373, 374

444

SUBJECT INDEX
References are to Case Numbers

Interstate commerce, tax on income from . . .

Invested capital .

Jurisdiction over income .

67, 91, 99,

100, 254, 255,

258

Inventories, contracts for the purchase of goods 394

Money invested in, not profits 388

Use of 31, 388

305, 306,
307, 308

Judicial salaries, tax on 248, 259-268, inc,

67, 88, 89,

90, 92, 93,

94-98 inc.,

100, 222, 241,

242, 249, 253

Lease, cancellation of, income 25, 77

Lease, depreciation of 68, 175, 179

Liability to tax, determined by domicile 385, 387

Doing business immaterial 28, 384

' 123, 383, 392,

Effect of dissolution .

400

Organized for profit 102, 155

123, 383, 392,

Remains after dissolution .

400

Lien for income taxes, as against innocent purchasers 402

Limitations, Statute of, irregular claim for refund 377

Liquidating dividends, income \ ' ' a '

[ 85

Loss, depreciation in value of stock because of dividend . . 24, 69

" 127, 128, 138,

Incurred in trade .

141

Of interest because capital unproductive 4, 81

Of money loaned, deduction 171, 172

On account of unserviceability of vessel 138

74, 75, 76,

Sale of bonds by obligor at discount .

146

When sustained 74, 75, 173

Mail, notice of assessment may be sent by 355

SUBJECT INDEX
References are to Case Numbers

445

Massachusetts trusts, taxable status 298, 299, 300

Merchants' incomes, nature of 125

Merger of corporations, liability for taxes of old 383

, .. ..... f 40, 68, 184,

Mining royalties, are income '

Municipal corporations, exempt from federal income
tax .229, 274, 276

Mutual insurance companies, abated pre-
miums, income

Dividends not income to company .

280, 286, 295,
296

278, 279, 280,

281, 282, 287,
291, 294, 297

278-282, inc., 287,
291, 294, 297

Net addition to reserve funds, insurance com-
panies

Dividends used to purchase more in-
surance, income

Mutual savings banks, dividends of 386, 397

' 281, 283, 284,

288, 289, 290,

291, 292, 294,

297

New York corporation tax acts, nature of 96, 206

New York transfer tax, deduction of 144, 145

88, 89, 90,

93, 94, 97,

211, 212, 216,

222, 241, 242,

249, 250, 251,

253

56, 58, 64,

66, 78

Office equipment, expenditures for, deduction 279, 291

Parent and subsidiary corporations, transfers be- 15, 16, 22,

tween 27, 43, 44,

63, 131

Partnership, as entity under Act of 1913 . . , 302, 303

Corporation as member of 301

Distinction from association 301

Foreign, income from United States 95

Nonresidents, income tax on .

Obligations to pay, income .

446 SUBJECT INDEX

References are to Case Numbers

Penalties, as part of the tax 367, 371

Bad in part are bad in whole 339

Compromise of 380

Enjoinder of collection of 367

Failure to make return 346

Fixed by Commissioner, when void 331

Personal services, what are 305, 306, 308

Philippines, citizens residing in 200

Political subdivisions, exemption, what are 274

Practice, admissibility of statements made by taxpayer's

auditor 155

Allowance by Commissioner of claim is J 335, 359, 362,

not subject to judicial review [ 363

Amendment of bill to enjoin collection 364

Amendment of irregular claim for refund, statute of

limitations 377

Appeal to Commissioner prerequisite to suit 289

Assessment not necessary before suit by government

221, 356, 358
Authority and effect of Secretary's reg- 56, 129, 306,

ulations 329, 351, 389,

398

Burden is on taxpayer to make his case 174

Claim allowed by Commissioner is account stated

335, 359
Claim for exemption first asserted in appellate court. . 350

Claim for refund, authority of Commissioner 362

Claim for refund before suit, necessity of. .127, 348, 372
Claim for refund filed with collector is sufficient. .359, 378

Claim for refund is not a "suit" 344

Claim for taxes, bankrupt's estate 336, 342

Commissioner's is final executive action 335

Commissioner may reconsider refund any time before

payment 346

Compromise money paid in to Treasury 331

Compromise, of penalties 380

Compromise, with solvent taxpayer 376, 380

SUBJECT INDEX 447

References are to Case Numbers

Practice — Continued

Costs of suits against collectors 334

Court cannot assess taxes 338, 340

Court will deal only with theory on which tax collected 338

Creditors' dividend comes after taxes 342

Effect of death of collector, suit against 343

Effect of delay by agreement, laches 330

Effect of regulations requiring verified returns 354

Effect of regulatory act on state courts 388

86, 225, 237,

■p ..,,,. ,. 241, 242, 364,

Enjoinder of collect™ ^ ^ ^

369
Errors in taxpayer's favor may be corrected in suit. . . 340

Every corporation required to make return 353, 357

Form of "claim" which is prerequisite to suit. . . .348, 377
Government may follow corporate assets upon disso-
lution to satisfy taxes 392, 400

r> * ■ ■ •* f 217, 220, 221,

Government may resort to suit \ _„. . ' '

[ 664 A, dob, 358

Government may sue for amount greater than as-
sessment 221, 356, 358

Income is question of law 37, 54, 55

Interest allowable until appellate decision 337

Interest allowable from collector, see Interest, Right to

Recover from Collector.
Jurisdiction of federal courts of suit between private

parties concerning contract to pay taxes 345

Liberal compromises for failure to make return 341

Lien for income taxes 361, 392, 402

Nature of action against collector 6, 340, 343

Necessity of claim for refund after abate- [ 127, 338, 364,

ment { 372, 397

Necessity of claim for refund before suit 348

No statute of limitations runs against government . . . 356

Notice of assessment may be sent by mail 355

Offsets 61, 340

448

SUBJECT INDEX

References are to Case Numbers

Practice — Continued

Parties 39

Payment under protest 197, 349

Penalties bad in part bad in whole 339

Penalties, failure to make return 341

Penalties fixed at direction of Commissioner, void. . . . 339

Penalties imposed by jury's action 353

Protest, payment under 197, 349

See Regulations.

Regulatory acts prospective only 388

Return required from all corporations 353, 357

See Revised Statutes.

Right to sue, cannot be founded on formality alone . . . 383

Right to sue collector 6, 340, 343

Statute of limitations, claim for refund 335, 374

Statute of limitations, suits for recovery of taxes . . 217, 289
Suit against collector is not against United

States 333, 334

" 6, 333, 334 B

340, 374

.343, 344, 347

217, 220, 221,

334 A, 356,

358

Suit for interest alone 352

Suit without appeal from second assessment 289, 332

Three-year limitation on assessment only 163, 217

Validity and effect of Secretary's regu- [ 56, 129, 306,

lations \ 329, 351, 389,

398
23, 69, 278,
281
278, 279, 281,
287, 288, 289,
291, 294
Privileges and immunities, constitutionality 241, 250, 251

Suit against the government, what is

Suit against successors in office of collector .

Suit by government

Premium on bonds purchased, amortization of .

Premiums, insurance, unpaid as income.

SUBJECT INDEX

449

Profit from sale of capital assets .

References are to Case Numbers

4, 5, 14,
32, 40, 41,
44, 45, 49,
57, 59, 61,
68, 78, 79,
80, 81, 87,
279

Protective trade associations, as insurance companies 285

Protest, payment of taxes under, what is 197, 349

Public service corporations, not ipso facto exempt 53

Purchases, within United States by nonresident, income

from 95

Railroads, income of, to be determined by Interstate Com-
merce Commission Rules 398

Receipts, for taxes, must be issued by collector 401

Receipts, simulation of, offense 401

' 103, 107, 116,
Receivers of corporate property, exemption . . 117, 118, 119,

[ 124

Red Cross, contributions to 142

Refund, claim for after rejection of claim for 127, 338, 364,

abatement [ 372, 397

Claim for, filing with collector is sufficient 359, 378

Of taxes includes penalties and interest 371

Commissioner's authority 335, 362

Commissioner authorized, not compelled, to make. . . 273

Review of claims allowed by Commissioner \ ' ' '

' \ 363

Regulations, power of Secretary and Commis- f 56, 129, 306,

sioner to make 329, 351, 389,

[ 398

Reorganization, acquisition of trust fund, income 395

1, 34, 40,

Reorganization of corporation, income 45 B, 48,

I 54, 55

Replacement of old property with new ' ' '

[ loo, 135, 170

450

SUBJECT INDEX
References are to Case Numbers

Reserves required by law, insurance companies

Reserves required by law, regulations of state
insurance commissioner

Retrospective tax

283, 284, 288,

289, 290, 291,

292, 294, 297

289, 292, 294,

297

192, 194, 213,

215, 243, 252,

400

Revenue law is penal 210

Revised Statutes, Section 3220 335

Section 3225 294, 370, 371

" 289, 335, 372,

373, 374
289, 335, 373,

374, 375
335, 372, 373,
374, 375, 378

Section 3229 379, 381

Section 3469 379

Rights to subscribe, sale of, income 52

40, 68, 184,

Section 3226.
Section 3227.
Section 3228.

Royalties, mining, as income .

188

Salary deduction by corporation, when excessive. . 139, 147, 150
Sales, within the United States by nonresident, income from 95

Services, income from 82, 210

' 225, 252, 257,

261

67, 88, 89,

90, 91, 93,

94, 95, 96,

97, 98, 100,

222, 249, 253

State salaries, exemption 259, 275, 277

Statute of Limitations, claim for refund 335, 374

Does not run against government 217, 356

Irregular claim for refund 377

Runs from payment to collector 374

Sixteenth Amendment, effect of.

Sources of income .

SUBJECT INDEX
References are to Case Numbers

451

Executive construction

False and fraudulent returns .

Statutory construction, "assessment" of income 120

f 24, 62, 104,

Change in act after dispute, effect of 119, 161, 210,

302

"Construing" of act by Congress 197 A, 213, 215

Deduction of federal income taxes 161

Deduction of taxes as necessary expenses 161, 167

Dividends from "earnings" 121, 203 A

Double deduction 136

13, 89, 115,

Doubtful points, construction of 240, 301, 302,

303

1917 excess profits tax, rates of tax 197

' 89, 129, 218,

219, 334 A

73, 163, 164,

220, 294, 370

Income from "employment" 210

"Interest from money at interest" 196

Reenactment after executive construction 334 A

Tax in effect January and February, 1913 193

191, 199,
Tax on dividends and interest as corporate 203 A, 204,

tax I 205, 209, 211;

212, 216, 272,
276

Tax on income from without jurisdiction 202

Tax paid to a "state" 214

Tax statutes, power of courts 307

Taxable income under particular statute 101

Three-year limitation 217

Steamship companies, income from United States 93, 95

[ 11, 30, 50,

Stock dividends, income 51, 52, 63,

72, 338

Subsidy to railroad, exemption 109

Suit against collector, statutory only 6

452

SUBJECT INDEX
References are to Case Numbers

Suit, government may bring for taxes.

f 217, 220, 221,

334 A, 356,

358

Suit, may be brought against government 334 B

Taxable entity, United States Express Company 396

Taxes paid on behalf of taxpayer, income and deduction. . 148
Taxing statutes, construction of doubtful
points

13, 89, 115,

240, 301, 302,

303

Trade associations, protective, as insurance companies. . . . 285

' 127, 128, 138,

Trade, losses incurred in .

141

Trade or business, what is 127, 128, 141

Traveling expenses as income 12, 19, 29

Treasury decision, weight of 129

' 104, 126, 298,
299, 300

Trustee for exempt institution, exemption 108, 122

Trustees for unascertained persons, exemption 104, 126

Trustees of corporate property, exemption 106

' 6, 11, 21,

Trust, as taxable entity .

Undivided profits, taxation to stockholders .

364
59

Withholding, tax withheld as corporate tax.

Value, resolution of board of directors is evidence of . . . .

Waiver, of revised statutes by governmental officer 366

191, 199,

203 A, 204,

205, 209, 211,

212, 216, 272,

276

Words and phrases, "acquired" 17

"Allowance for depreciation" 184, 185, 188

"Arising and accruing" 42

"Assessed" 120

"Assessor" 214

"Borrowed capital" 305

"Depletion" and "depreciation" equivalents 189

"Depreciation" 177, 178

SUBJECT INDEX 453

References are to Case Numbers

Words and phrases — Continued

"Dividend" 72

"False" 73, 167

"False or fraudulent" ( 163 ' ^ 220 '

[ 294, 370

"Fraternal beneficiary society" 102

' 11, 24, 26,

"Income" 44, 45, 49,

, 52, 70, 222

Income from "employment" 210

"Interest from money at interest" 196

"Invested capital" 305, 306

"Losses incurred in trade" 127, 128, 141

"Mutual" 105, 115

"Net addition if any required by law to [ 283, 288, 290,

be made to reserve funds" [ 292

"Net income" includes excess profits tax. . .207, 208, 309

"No part of the net earnings of which" 105

"Not false nor fraudulent" 370

"Operating the property or business" 106

"Operating under the lodge system" 102

"Organized for the mutual benefit of the members" . . 114
"Reasonable allowance for depreciation of property"

184, 185

"Received" 42

"Restraining" 366

"Trade or business having no invested capital or no

more than a nominal capital" 305, 306, 308

" Year next preceding assessment " 195